House and Senate banking committee leaders are close to an agreement on a Federal Housing Administration reform bill, and it could clear the way for final passage in a few weeks. Reform Bill, known as the Expanding American Home Ownership Act, was introduced in the 109th Congress in 2006. When enacted, the bill will enable FHA to reach more prospective borrowers and allow millions more low- and moderate-income families to achieve the American dream of homeownership. Among the significant changes still on the table are:
1. Reducing down payment requirements from 3% to 1.5%.
2. Disallowing seller-funded down payment assistance programs (DAPs, like Nehemiah or Futures)
3. Introduction of a 40-year term
4. Increasing the FHA loan limit to conforming limits, currently $417k.
5. Introduction of risk-based mortgage insurance premiums.
HUD has already responded to the subprime crisis with the FHA Secure initiative, but the work is most definitely not complete. FHA Secure only helps borrowers whose ARMs are resetting and who are still current on their payments. By reforming and modernizing the FHA program, more buyers will be served and potentially made homeowners. Even under current FHA guidelines I’ve been able to put clients into homes with nothing out of pocket and keep their after-tax payments down to almost what they were paying for rent. It really is pretty amazing to think that you can finance a property for essentially 100% of its purchase price at interest rates currently less than 6%. I’ve also used FHA as an alternative to subprime. I have two clients now with 578 and 483 FICO scores who I put into an FHA loan with 20% down. Their payment was less than $2200 including taxes and insurance, whereas the next best subprime offer would have made their payment almost $400 higher and included a 3-year prepayment penalty.
I’m curious to hear readers’ thoughts and comments on the FHA reform bill? Is it a good idea to be putting buyers into houses with only 1.5% down, maybe even on a 40-year note?
Also available by RSS Feed