|HUD No. 06-088
July 25, 2006
HOUSE PASSES BILL TO MODERNIZE FEDERAL HOUSING ADMINISTRATION
Legislation Will Increase Access to FHA for Potential Homebuyers
WASHINGTON - The U.S. House of Representatives today passed "The Expanding American Homeownership Act," which will increase homeownership opportunities for millions of Americans by modernizing the Federal Housing Administration (FHA) and returning it to its traditional role as an important financing option in today’s housing market.
"I applaud the House for passing this far-reaching legislation and express appreciation for the leadership provided by Representatives Bob Ney, Maxine Waters, Gary Miller, and Patrick Tiberi," said Housing and Urban Development Secretary Alphonso Jackson. "I expect the Senate to take similar action thanks to the efforts of Senator Jim Talent and the support of Senators Mel Martinez, Johnny Isakson, and Saxby Chambliss."
"When FHA was formed in 1934, it was an historic event that made homeownership possible for people who had nowhere else to turn," said Assistant Secretary for Housing-Federal Housing Commissioner Brian D. Montgomery. "We are now closer to another landmark - a modernized, flexible FHA that can respond to the needs of today’s low and moderate-income homebuyers who need a helping hand."
The Expanding American Homeownership Act (H.R. 5121) will enable FHA to reach more prospective borrowers and allow millions more low- and moderate-income families to achieve the American dream of homeownership. Many of these borrowers currently have little choice but to pay subprime rates because FHA lacks the ability to offer an affordable financing option.
FHA was created in 1934 to give homebuyers access to reasonably priced mortgages under fair terms. Over the years, it has been able to help more than 34 million families become homeowners and now it needs to be able to adapt to today’s marketplace. This legislation will bring FHA into the 21st Century and offer hard-working Americans a variety of safe homeownership options at a fair price.
The Expanding American Homeownership Act will:
1) Eliminate the current statutory three percent minimum down payment, reducing a significant barrier to homeownership. FHA's existing down payment requirement does not meet the demands of today's marketplace, where most first-time homebuyers put down two percent or less. The "new" FHA would offer a variety of down payment options.
2) Create a new, risk-based insurance premium structure for FHA that would match the premium amount with the credit profile of the borrower. It would replace the current structure, in which there is standard premium amount for all borrowers, while still protecting the soundness of its Insurance Fund. FHA would have the flexibility to charge a lower premium for low-risk borrowers, and to charge higher-risk borrowers a slightly higher premium.
3) Increase and simplify FHA's loan limits. FHA's loan limit in high-cost areas would rise from 87 to 100 percent of the GSE conforming loan limit and in lower-cost areas from 48 to 65 percent of the conforming loan limit. This change is crucial in today’s housing market. In many areas of the country, the existing FHA limits are lower than the cost of new construction, eliminating FHA financing as an option for buyers of new homes in those markets. FHA has simply been priced out of the market in other areas, such as California, where FHA insured only about 5,000 home mortgages in all of 2005, down 95 percent from 109,000 in 2000.
HUD is the nation's housing agency committed to increasing homeownership, particularly among minorities; creating affordable housing opportunities for low-income Americans; and, supporting the homeless, elderly, people with disabilities and people living with AIDS. The Department also promotes economic and community development, and enforces the nation's fair housing laws. More information about HUD and its programs is available on the Internet and espanol.hud.gov.