Tuesday, December 25, 2007

The FHA Modernization Act

The Federal Housing Administration (“FHA”) was established during the height of the Great Depression by the Housing Act of 1934. By offering government-backed insurance for the full balance of a loan, the FHA was created to encourage the private sector to return to the mortgage market and aid the increasing number of families who were defaulting on their loans and losing their homes

Today, a record number of American families are facing mortgage payment delinquencies and foreclosures. An estimated two million households may lose their homes to foreclosure between 2007 and 2008. This is where the FHA Modernization Act comes in.

The FHA Modernization Act would:
1) 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 higher-risk borrowers a slightly higher premium, and to charge a lower premium for low-risk borrowers.

2) 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.

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.

4) other things like enchanced fraud protection, helping homeowners keep their homes, etc

Lots of people are saying "it's a good thing" ..... it will be interesting to see.
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