The Federal Housing Administration shook up Washington's mortgage and real estate leaders last week by announcing that it's shifting its entire production line to risk-based pricing -- starting this summer.
According to Brian D. Montgomery, who oversees the Federal Housing Administration at the Housing and Urban Development Department: "FHA has made significant changes, streamlining and realigning its operating procedures. While these changes are good and long overdue, they are not enough. The law must be amended to give FHA the flexibility it needs."
The pending legislation would allow FHA to fulfill its mission, just as it did in 1934. Back then, interest-only loans and balloon loans were prevalent, so FHA was established to give the private sector a way to provide long-term, fixed-rate financing.
The proposed FHA reform bill would increase access to home loans by lowering down payment requirements and allowing FHA to insure bigger mortgages in high-cost areas — places like California, New York, Massachusetts and the District of Columbia, where FHA has been practically nonexistent for the better part of a decade. The need for higher loan limits in areas such as these was noted in the economic stimulus package President Bush recently signed. It temporarily raises FHA loan limits to as much as $729,750.
The FHA reform bill would also expand FHA's authority to price the insurance fairly, with risk-based premiums. All of these changes are critically important in the effort to help subprime borrowers refinance into safe and affordable home loans, while giving new borrowers the safe FHA alternative.
Although both bodies of Congress have passed versions of these reforms, FHA isn't out of the woods. Congress must now reconcile the differences between the two bills and produce a single, comprehensive piece of legislation for the president's signature.
Source: FHA Newsroom
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