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Bulletin: Senate Approves FHA Reform, 63-5

by Peter G. Miller
July 11th, 2008

Late Friday afternoon the Senate voted 63-5 to approve FHA reform. The measure, H.R. 3221, the American Housing Rescue and Foreclosure Prevention Act, now goes to the House for consideration. In practice, the House and Senate versions of the measure will be combined into a finalized form by a conference committee and then voted on by each chamber. If passed, the measure will be sent to the President.

While it’s expected that a unified measure will emerge from the conference committee, it’s also expected that there will be a lot of debate as various interests try to mold the final bill to their liking.

Items of debate include:

___The FHA loan cap — the Senate wants $625,000, the House wants $729,750 and the Bush Administration would prefer $550,000. The bottom line: The FHA loan limit will be raised substantially from the 2007 cap of $362,790 for a single-family home in the lower 48 states.

___The Senate wants nearly $4 billion to buy foreclosed properties. Many Republicans and conservative Democrats in the house oppose this item.

___The present Senate bill would get rid of downpayment assistance programs. This is an odd situation, considering that the Congress has generally backed such programs while HUD has vehemently opposed them. Scott Syphax, President and CEO of Nehemiah Corporation of America, a major provided of downpayment assistance, said “we are extremely disappointed and astonished by the full Senate’s decision to ban privately-funded downpayment assistance programs through the passage of its Housing Bill. This decision turns a blind eye to the overwhelming success of these programs and their role in helping hundreds of thousands of working families become homeowners.”

“The Senate has trivialized the tremendous bipartisan support from members of the House, community organizations, caucus groups and families nationwide who are dependent on such programs,” he said. “Increasingly, there are no other options for thousands of qualified low and moderate income homebuyers in this country today to achieve what middle class and wealthy Americans see as their birthright. Despite what the Administration and members of the Senate falsely profess, privately funded down payment assistance is not the reason that FHA is looking at a budget imbalance in the coming years. As Congress works to finalize the Housing bill in the coming weeks, we unequivocally urge members to weigh their decision closely with regard to seller-funded downpayment assistance programs overall, and to consider the lasting impact of their actions on countless American families working to reach homeownership.”

The Mortgage Bankers Association put out a statement earlier on Friday describing some of the provisions in the Senate measure:

___FHA Modernization: Authorizes an appropriation to improve technology, processes, program performance, eliminate fraud and provide appropriate staffing. Effective January 1, 2009, it also increases the FHA loan limits to 110 percent of the local median home price (not to exceed $625,000), establishes a 12-month stay on FHA’s proposal for risk-based premiums, sets the down payment requirement at 3.5 percent and prohibits seller-funded down payment assistance (both direct or through a third party).

___GSE Oversight Reform: Creates a new regulator (five year term, appointed by the President, confirmed by the Senate) with oversight authority similar to the other bank regulators, establishes a new affordable housing fund and capital magnet fund to be funded by a 4.2 basis point fee on all new loans and raises the conforming loan limit to the local median home price, not to exceed $625,500 (effective January 1, 2009).

___FHA Rescue: Creates a voluntary program for lenders to write down the loan balance in exchange for an FHA guaranteed loan not to exceed 90 percent of the newly appraised value of home. The lender would pay a 3 percent FHA loan origination fee. To qualify, the borrower must have a debt-to-income ratio above 31 percent on the original loan. Program capped at $300 billion.

___Tax Incentives: Creates an $8,000 tax refund for first-time home buyers, expands the volume cap for the low income housing tax credit, allows for tax-exempt treatment of bonds guaranteed by the Federal Home Loan Banks. Also provides for the use of low-income housing tax credits against the Alternative Minimum Tax which should expand the investor base for this key generator of affordable rental housing production.

___TILA Reform: Requires TILA disclosures to be delivered seven days prior to loan origination, requires that disclosures include examples of how payments would change based on rate adjustments in addition to disclosing the maximum possible payment under the loan terms and mandates that the consumer receive the disclosures before paying anything more than a nominal fee that covers the cost of a credit report.

___Empowering States: Raises the caps on tax-free bonds that state housing finance agencies may use to help at-risk homeowners by $11 billion and appropriates $4 billion for states to purchase and renovate abandoned and foreclosed properties.

___Licensing: Encourages state officials to create a national licensing system for residential loan originators, allows HUD to create their own national licensing system if the states fail, establishes minimum qualifications for all loan originators and requires federal regulators to create a registry for banks and thrift employees who originate loans.

The National Association of Home Builders also had a summary of the bill, saying it would:

___Create a temporary, first-time home buyer tax credit for the purchase of any home. This would stimulate the housing market, eliminate excess inventory, relieve downward pressure on house prices and bring otherwise-qualified home buyers back into the market.

___Establish a more effective and balanced regulatory system for the housing government sponsored enterprises (GSEs) – Fannie Mae, Freddie Mac and the Federal Home Loan Banks. It would also permanently increase the GSE’s conforming loan limits up to $625,500, making home loans more affordable in high-cost areas.

___Give the Federal Housing Administration (FHA) greater flexibility to respond to the needs of borrowers, help more working families become home owners, provide a viable alternative to the subprime market and play a greater role in stabilizing the mortgage markets. The maximum FHA-insured loan would be permanently increased up to $625,500, helping prospective buyers to purchase homes in more markets across the country.

___Provide a temporary increase in state tax-exempt housing bond authority to help struggling home owners refinance their subprime loans and to increase access to affordable mortgage credit.

___Enhance the Low Income Housing Tax Credit (LIHTC) and tax-exempt housing bond programs to increase their effectiveness in addressing the nation’s continuing affordable housing needs.

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