HUD Archives: News Releases

HUD No. 07-045
Steve O'Halloran
(202) 708-0980
For Release
April 17, 2007

Legislation to modernize FHA needed now more than ever

WASHINGTON - To address the growing number of foreclosures in the subprime market, modernizing HUD's Federal Housing Administration (FHA) continues to be "the most practical and immediate way to address the needs of a large number of troubled subprime borrowers," said Assistant Secretary for Housing - Federal Housing Commissioner Brian Montgomery in testimony before the House Financial Services Committee today. "With expanded authority to set insurance premiums commensurate with risk, FHA could potentially assist tens of thousands more borrowers who need an exit strategy from their subprime mortgages," the Commissioner added.

"We fully recognize the crippling effect foreclosure has on homeowners, communities, lending institutions and real estate investors," Montgomery said. "FHA goes the extra yard to keep homeowners in their homes. We not only want to get them into a home but we also want them to fulfill the American dream by remaining in their homes."

In his testimony, the FHA Commissioner said the Bush Administration has been advocating for nearly two years that FHA would be a better alternative for many subprime borrowers if it were modernized. Montgomery again urged Congress to pass legislation that enhances the FHA's government-insured mortgage products and provides "a safer, more affordable financing option than many subprime loans" for first time homebuyers, minority families, and families with troubled credit. The Expanding American Homeownership Act passed the House last year by a vote of 415 - 7 and has been reintroduced this year.

To prevent the FHA from being priced out of many housing markets, the FHA's modernization legislation would increase loan limits. Today, manybuyers of homes in high cost areas cannot use FHA financing because FHA's loan limits aren't high enough to meet the cost of most homes in those regions. The modernization legislation would also make the downpayment requirement more flexible, eliminating the three percent downpayment that is currently mandated by law. FHA modernization legislation would also create a new, risk-based insurance premium structure 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 continues to help qualified borrowers refinance with FHA. However, this type of relief is minor compared to the number of families who would benefit from FHA modernization. FHA's refinancing business has significantly increased over the past year. For the first five months of FY2007, conventional-to-FHA refinancing was up 94 percent from the same period in FY2006. If this current trend continues, FHA will endorse over 100,000 conventional-to-FHA refinancings in FY2007, compared to 64,474 in FY2002.

The Commissioner also laid out specific criteria eligible subprime borrowers must meet in order to refinance with FHA:

  1. Can afford payments on a fixed-rate loan at a market rate of interest, with FHA insurance premiums;
  2. Have a property with sufficient equity to qualify for FHA financing;
  3. Can meet other standard underwriting criteria that balance the overall risk of the mortgage; and
  4. Are owner-occupiers.


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 For more information about FHA products, please visit

Content Archived: May 10, 2010