Senate Passes FHA Bill, Conflicts With House Measure

by Peter G. Miller
September 19th, 2007

The Senate Banking Committee has now passed its version of FHA reform, a version which does not match the bill passed by the House.

How do the bills differ?

One major distinction is that the House measure would allow individuals to buy with no money down. That compares with the current 3 percent down FHA requirement. The Senate bill says borrowers should put down at least 1.5 percent.

Both bills would increase the size of FHA loans, now a maximum equal to $362,790 or 87 percent of the conforming loan of $417,000. The House bill reportedly would permit financing for as much as $729,750 high-cost area while the Senate measure would raise the FHA loan limit to the $417,000 mark.

The conflicting measures will now go to a conference committee to see if a compromise can be worked out. Lurking in the wings is input from the White House which opposes various elements of both bills.

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This entry was posted on Wednesday, September 19th, 2007 at 2:03 pm and is filed under . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

4 Responses to “Senate Passes FHA Bill, Conflicts With House Measure”

  1. Steve R Sanders Says:

    I was a banker for a decade and ran a $100 million mortgage operation in California. While it may be argued that the House bill is slightly aggressive, it may equally be argued that the Senate bill is too conservative. What cannot be argued is that something must be done and quickly. While Congress and the Whie House fiddle, Amercian homeowners are burning.

    The present loan limits on both Fanniemae and FHA preclude participation by many higher cost areas of the country. Unfortunately there are those in lower cost areas that parochially sneer when discussing aid to higher cost areas, proclaiming the resident thereof idiots for paying too much for property.

    Unfortunately for their argument, laws of supply and demand apply equally to housing and corn. Where there is a limited supply of land near jobs, as on the East and West Coasts, property values will escalate, while in the Midwest, where land is more plentiful than people, value will more readily stabilize. Ask farmers what happens to the price of corn when there is a poor crop year. Same principal. Steady or increasing demand combined with limited supply equals higher price.

    We have nationally ignored higher priced areas, except Hawaii and Alaska, which enjoy very high limits, believing the high price areas deserve what they get. This unsophisticated and shor-sighted attitude is what has created the present housing crisis.

    With govenment backed loan programs comes additional loan scrutiny. Low FICO scores and high priced homes are not the problem. Stated income, high rate ARM’s and excessive loan ommissions are. Federal programs preclude poor loan practices by putting in place strong underwriting guidelines.

    Encouraging increases in federally scrutinized loan programs increases loan quality and discourages abuses. What can be wrong with that.

    And the best part, it costs the American taxpayer nothing.

    Unlike bailouts, which need to be subsidized by someone, allowing Fanniemae and FHA to makes loans to aid unfortunate borrowers actually ensures a stronger economy, reduces foreclosures and pays for itself.

    Even if all the loans Fanniemae bought in the next year were fraudulant, it would barely put a dent in the Trillions of dollars Fanniemae has out in loans. That would never happen anyway as Fanniemae and the FHA are scrupulously cautious about their underwriting.

    Please email or write your representatives from Congress and tell them to get off the dime and make something happen. Tell George W and his folks the same.

    Homeowners in high cost areas of this country aren’t in Kansas anymore and they are dieing. Even if you have no sympathy for their plight, help them before your national economy dies too.

  2. Peter G. Miller Says:

    Steve –

    Thanks for your post.

    How do the losses by Fannie Mae and Freddie Mac impact the idea of higher conforming loan limits?



  3. bill Hutto Says:

    Is there any pending new legislation that will prohibit mortgage brokers from recieving yield spread from the lenders we have heard that there is such legistlation ending yield spread premium to mortgage brokers thanks bill hutto

  4. Peter G. Miller Says:

    Bill –

    Thanks for your question.

    The Fed, under its proposed rules, would required the disclosure of yield spread premiums. However, this is a proposal and not a final rule as of this moment.

    The Senate bill summary says, for example, that “the bill prohibits YSPs for placing a borrower in a high cost loan that is more costly than that for which the borrower qualifies. Mortgage brokers, who have originated about 70 percent of subprime mortgages, receive higher compensation through YSPs for steering borrowers to these higher cost loans. This bill will eliminate the incentive to ‘upsell’ these borrowers.”

    The House summary says its bill provides that “for mortgage loans that are not prime loans, no mortgage originator can receive, and no person can pay, any incentive compensation (including yield spread premiums) that varies with the terms of the mortgage loan (except for size of the loan and number of loans).Regulations will be promulgated to prohibit mortgage originators from (1) steering any consumer to a loan that the consumer lacks a reasonable ability to repay, does not provide net tangible benefit, or has predatory characteristics, (2) steering any consumer from a prime loan to a subprime loan, and (3) engaging in abusive or unfair lending practices that promote disparities among consumers of equal credit worthiness but different race, ethnicity, gender, or age.”

    Please hit the links for more background and thanks for posting.

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