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CUOMO ISSUES HIGHER FHA HOME MORTGAGE LOAN LIMITS FOR COMMUNITIES AROUND NATION TO INCREASE HOMEOWNERSHIP
NOTE: List of new loan limits is attached. For most counties not on the list, the new limit is $109,032.
CHICAGO - Housing and Urban Development Secretary Andrew Cuomo today announced higher Federal Housing Administration home mortgage loan limits for communities around the nation, implementing a Clinton Administration initiative that will enable thousands more American families to become homeowners each year.
"These higher loan limits will unlock the door to homeownership for hard-working families, transforming homeownership from an impossible dream into a sweet reality," Cuomo said in Chicago, where he addressed a convention of the Mortgage Bankers Association of America. Cuomo thanked the MBA for strongly supporting HUD's efforts to raise the loan limits.
"As a result of President Clinton's successful economic policies and homeownership strategy, our nation's homeownership rate stands at 66 percent - the highest level in American history," Cuomo said. "Today 68.3 million American families own their homes - over 6 million more than when President Clinton took office. The approval of higher FHA loan limits will drive the homeownership rate even higher in the years ahead. That's good news for families, good news for the housing industry, good news for lenders, and good news for America."
The new limits for mortgages insured by FHA, which is part of HUD, will benefit homebuyers in more than 250 metropolitan areas and about 2,200 rural counties across the nation, Cuomo said.
Cuomo issued a list of metropolitan areas that will have FHA loan limits ranging from $109,032 in low-cost housing areas to $197,621 in high-cost areas - up substantially from limits in effect until now that ranged from $86,317 in low-cost areas to $170,362 in high-cost areas.
For the first time, all counties within a metropolitan area will have the same loan limit. The vast majority of these counties will get higher loan limits, while the limit in some counties will remain the same.
The rest of the nation's counties, located in rural areas, will see their FHA loan limits increase from their current level of $86,317 to $109,032.
The new limits were approved by Congress last week after President Clinton sought an increase. The new limits will take effect as soon as the President signs them into law, which he is expected to do later this week.
Cuomo said FHA remains an important vehicle to homeownership. He announced that in the 1998 fiscal year FHA insured nearly 1.1 million home mortgages - the third-highest total in FHA's 64-year history.
"Because FHA serves so many Americans and plays such a vital role in making homeownership possible, we must make sure it does an outstanding job in carrying out its responsibilities," Cuomo said. "In the past year we have done this, creating a new FHA for the new century that is efficient, effective, accountable, and a model of government reinvention."
Cuomo said the increase in FHA loan limits is "the latest a series of improvements at FHA that is increasing homeownership and better serving the American people." He said other changes include:
HIGHER FHA LOAN LIMITS
FHA loan limits are being increased to enable more families to get larger mortgages, to keep pace with rising home prices. Without the increase, growing numbers of families would be unable to borrow enough to buy a home with an FHA mortgage. The higher limits will not cost the government any money, because FHA insurance is funded by premiums paid by borrowers.
Over its six-decade history, FHA has made homeownership available to about 24 million families. Because FHA loan limits have failed to keep up with rising home prices, FHA's ability to serve homebuyers has declined dramatically.
FHA does not make mortgage loans directly, but rather insures loans made by private lenders to homebuyers. FHA insurance guarantees the lender timely payment of principal and interest, in the event the homebuyer defaults on the loan.
Because FHA mortgage insurance protects lenders from losses, it enables millions of Americans who would otherwise be locked out of the mortgage market and homeownership to qualify for mortgages. Cuomo said the higher loan limits will particularly benefit first-time homebuyers, who received over 80 percent of FHA-insured home loans in the past year.
FHA-insured loans benefit homebuyers in these ways: 1) FHA downpayments of 3 percent are lower than the minimum that many lenders require for non-FHA mortgages. High downpayments are a major roadblock to homeownership. 2) Homebuyers can borrow closing costs in their mortgages - something often not permitted with many non-FHA mortgages. 3) FHA's requirements for homebuyer credit ratings are more flexible than those set by many lenders for non-FHA borrowers. 4) FHA permits homebuyers to use gifts from family members and non-profit groups to make their downpayments, while conventional loans generally require homebuyers to come up with downpayments on their own. 5) FHA permits a borrower to carry more debt than a private mortgage insurer typically would allow.
DOWNPAYMENT REDUCTION AND SIMPLIFICATION
FHA is moving from a complex mortgage downpayment formula requiring several calculations to a nationwide formula based on the price of a home. In many instances, the new formula will enable homebuyers to purchase a home with a lower downpayment, because minimum FHA mortgage downpayments for all homebuyers will be limited to 3 percent. Until now, minimum downpayments could go as high as 7 percent for the highest FHA-insured loans.
The lower downpayments will enable more homebuyers to qualify for FHA mortgages.
The formula changes will also make it easier for lenders, homebuyers, real estate agents and others involved in the housing industry to calculate the downpayment on an FHA mortgage, speeding loan processing..
HIGH-SPEED LOAN EVALUATIONS
A powerful new computerized loan evaluation system has cut the time it takes to evaluate a homebuyer's application for an FHA-insured mortgage from four weeks to two minutes. The new system is dramatically reducing paperwork, and is enabling more families to qualify for FHA mortgages. So far nearly 53,000 FHA mortgage insurance applications have been reviewed using the new system, in cooperation with Freddie Mac and Fannie Mae.
FHA has moved from 81 small offices to four Homeownership Centers with state-of-the art technology to operate more effectively and efficiently. By moving the processing functions of FHA to the four centers, HUD's field offices can concentrate on customer services. This follows the pattern of banks that have consolidated "back office" functions.
FHA reforms are part of the HUD 2020 management plan launched by Cuomo. An evaluation of the reinvention effort released earlier this year by management expert David Osborne says HUD's management reform plan "as it is being implemented today represents one of the most ambitious, fundamental, and exciting reinvention plans in the recent history of the federal government."
A related review released by Booz-Allen & Hamilton Inc. concluded that HUD has made "significant progress towards achieving the many management reforms that are critical to making the Department function effectively."
REINVENTING FHA'S HOME APPRAISAL PROCESS
HUD has developed a Homebuyer Protection Plan, a package of far-reaching reforms that will benefit families who get FHA mortgages each year by dramatically reinventing FHA's home appraisal process.
The Homebuyer Protection plan that HUD is implementing to cover all homes purchased with FHA-insured mortgages will: 1) Require a more thorough basic survey of the physical condition of the home to uncover potential problems. 2) For the first time require that home defects found by appraisers be disclosed to potential buyers. 3) Impose stricter accountability on all appraisers and tougher sanctions on those who act improperly - ranging from barring them from doing more FHA appraisals to steep fines and potential prison sentences in the most extreme cases. 4) Require an appraiser to recommend a full inspection of a home if the appraiser finds significant problems. 5) Allow HUD funds to be used for home inspections.
FHA appraisals, which are designed to determine the value of a home, include a limited review of possible physical problems in the home. Inspections are much more detailed examinations that go beyond assessing the basic soundness and safety of a home. An inspection can often uncover problems not detected by an appraisal.
A FAVORABLE INDEPENDENT AUDIT
An independent audit by KPMG Peat Marwick LLP and an actuarial report by Price Waterhouse issued earlier this year show that the FHA Insurance Fund is considerably stronger than it was before President Clinton took office. The audit report noted: "FHA is changing for the better. We applaud management for its consistency in its efforts to make FHA relevant in, and responsive to, the marketplace."
The audit said that HUD has made significant progress toward developing processes to effectively manage its current insured portfolio and inventory of notes and properties, while continuing to serve the needs of the housing market; implemented an oversight tool that will help identify troubled and potentially troubled housing projects; and reached an agreement with the Department of Health and Human Services that will help increase FHA's ability to manage individual facilities in its $5 billion hospital portfolio.
NEW LENDER SCREENING
The Mortgage Asset Research Institute has begun using a computer database to screen companies applying for designation as FHA-approved lenders, in a move to keep lenders with bad records out of the FHA mortgage insurance program.
The screening checks a lender's background to determine if the lender has been sanctioned by state or federal agencies for improper actions. If sanctions turn up and if the lender is unable to offer a satisfactory explanation for past conduct, the lender is denied the opportunity to participate in FHA programs.
Content Archived: January 20, 2009