Overdue FHA Reforms Would Help Affordability

FHA's loan limits, down payment requirement, and fee structure haven't kept pace with the mortgage marketplace, says NAR President Thomas M. Stevens.
NAR: REALTOR® Magazine Online
Long overdue reform of the Federal Housing Administration’s single-family mortgage insurance program will provide home buyers an affordable alternative to higher cost loans and help bridge the gap in minority home ownership, Thomas M. Stevens, president of the NATIONAL ASSOCIATION OF REALTORS®, told the Senate Housing and Transportation Subcommittee today.

“FHA’s market share has dwindled because its loan limits, down payment requirement, and fee structure have not kept pace with the current mortgage marketplace,” Stevens says.

As a result, a growing number of home buyers are deciding to use one of several new types of specialty mortgages, and FHA has become a lender of last resort, according to NAR.

FHA loans account for only 3 percent of the overall mortgage market, compared to about 12 percent in the 1990s.

“REALTORS® see first-hand how the decline in FHA mortgages has had a significant impact on America’s home buyers,” said Stevens. “REALTORS® know that for housing to remain affordable, reforms are needed to make FHA a viable mortgage product for today’s home buyers.”

On Monday, June 19, Senator Jim Talent (R-Mo.), joined by Senators Johnny Isaakson (R-Ga.), Saxby Chambliss (R-Ga.) and Mel Martinez (R-Fla.) introduced the Expanding American Homeownership Act (S. 3535), which encompasses the reforms recommended by FHA and advocated by NAR.

The Expanding American Homeownership Act includes: increasing loan limits, eliminating the statutory 3 percent minimum cash investment and downpayment calculation, allowing for extended loan terms from 30 to 40 years, allowing FHA flexibility to provide risk-based pricing, moving the condo program into the 203(b) fund, and lifting the current owner-occupied requirement to qualify condominium units for FHA-insured mortgages.

“First-time home buyers, minorities, and home buyers with less than perfect credit will continue to see fewer and fewer safe, affordable mortgage options, if the recommended reforms are not made to the FHA program,” Stevens says.

According to Moody’s Investors Service, a leading provider of independent credit ratings, more than a quarter of all existing mortgages come up for interest rate increases in 2006 and 2007 when the term rate expires.

While some home owners may be prepared to make the new higher payments, NAR is fearful that many will find it difficult, if not impossible.

A study by the Center for Responsible Lending reported that minorities are 30 percent more likely to receive a higher priced loan than white borrowers, even after accounting for risk. A study by the National Community Reinvestment Coalition found similar results.

“Approving these reforms will go a long way to boost our nation’s homeownership rate, particularly among minority home buyers who have lower rates than the national average,” says Stevens. The minority homeownership rate stands at around 50 percent, compared with nearly 70 percent for the nation as a whole.

“REALTORS® care about the lack of housing opportunities and know that revitalizing the FHA mortgage insurance program could once again promote homeownership to all sectors of the real estate market,” Stevens says.

NAR is committed to working with Congress and the administration to craft legislation that furthers the mission of the FHA single-family mortgage insurance program and makes home ownership possible for millions more families in the years to come.

The FHA program has helped nearly 33 million families achieve home ownership since 1934.

NAR also has a lead role in forming a new coalition whose mission is to advance overdue reforms for FHA in Congress. The Coalition for a Strong FHA is composed of housing industry leaders including the National Association of Home Builders, National Council of State Housing Agencies, National Association of Independent Mortgage Bankers/Lenders One, National Association of Hispanic Real Estate Professionals, National Association of Real Estate Brokers, National Association of Local Housing Finance Agencies, Asian Real Estate Association of America, and the Strategic Alliance for Mortgage Subsidiaries.