At-risk homeowners have ‘exit strategy’ if FHA modernized
 

WASHINGTON – April 18, 2007 – In testimony before a U.S. House committee yesterday, Department of Housing and Urban Development (HUD) officials said that a modernization of HUD’s Federal Housing Administration (FHA) lending program would help many homeowners who find they can no longer afford their subprime ARM mortgage payments.

Modernizing FHA is “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. “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.”

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. Currently, many buyers of homes in high cost areas cannot use FHA financing because FHA’s loan limits aren’t high enough to match the cost of local homes. The modernization legislation seeks to eliminate the 3 percent downpayment currently mandated by law, and create a new, risk-based insurance premium structure matched to the credit profile of the borrower.

FHA currently helps qualified borrowers refinance, but HUD claims that this type of relief is minor compared to the number of families who would benefit from FHA modernization. FHA’s refinancing business has increased over the past year. For the first five months of fiscal year 2007, conventional-to-FHA refinancing was up 94 percent from the same period in fiscal year 2006. If this current trend continues, FHA will endorse over 100,000 conventional-to-FHA refinancings in fiscal year 2007, compared to 64,474 in fiscal year 2002.
 

© 2007 FLORIDA ASSOCIATION OF REALTORS®