Is FHA “Reform” In The Works?
August 16th, 2007
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FHA “modernization” has passed in the House but has hit a brick wall in the Senate — until now. The Hill, an independent paper that tracks events in political Washington, says that talks are underway to pass some form of FHA changes, but instead of “modernization” the new buzzword is “reform.”
One major issue is that under current FHA rules buyers must pay 3 percent down to buy a home. The House bill, H.R. 1852, would reduce that to zero, but a compromise, says The Hill, may be to change the downpayment requirement to 1.5 percent.
“A sticking point,” says the paper, “is the no-money-down provision. Currently, the FHA insures loans only when the borrower makes a 3 percent down payment. Lobbyists expect a Dodd-Martinez bill to relax the requirement to 1.5 percent ‘cash down,’ in the form of a down payment, closing costs or other expenses. But that might not be enough to appease Shelby, who has voiced skepticism about expanding the FHA, lobbyists said.”
As we said last month, Sen. Richard Shelby (R-Al), is vehemently opposed to modernization, as are others in the Senate.
The Hill reports that the foreclosure surge is pushing the issue in the Senate, however high levels of foreclosure are one of the main worries of those who oppose FHA modernization. The FHA program, after all, is an insurance program — and insurance programs are not designed to encourage losses, especially those for which taxpayers might potentially be liable.
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August 25th, 2007 at 10:10 am
I believe that the modernization proposed in this bill is necessary. One difference between FHA and the subprime loans that have caused so many foreclosures is that you actually have to prove your income on an FHA loan. There are no “no-income loans” with FHA. I also think that given the current condition of mortgage lending, the lenders out there underwriting these FHA loans will be much more inclined to follow the rules this bill will bring about.
August 25th, 2007 at 10:46 am
Debbie –
You raise a very important point — the FHA does require that borrowers document income.
The problem is that many current borrowers who would like to refinance used “stated income” loan applications where they estimated income. To refinance, they will have to document actual earnings. To be polite, we can expect that in a lot of cases that estimated incomes were, er, overstated….
What this means, unfortunately, is that many of those with toxic loans do not have the income to refinance.
August 31st, 2007 at 10:18 am
is the bill really going to do away with the HUD net worth requirement for brokers and allow state licensed originators to do fha loans with a 75,000 (bond) in place
??
greg Brow
August 31st, 2007 at 10:39 am
Greg –
Thanks for your inquiry.
There is no final bill at this point. There was a bill passed by the House last year, but nothing from the Senate. The result is that we don’t have a final document to check and whatever language is now in place could be changed in the Senate or the conference committee if the Senate passes a bill after Labor Day.