FHA MODERNIZATION

THE EXPANDING AMERICAN HOMEOWNERSHIP ACT OF 2007 (H.R. 1852).

This bill designed to modernize FHA was passed by the House of Representatives yesterday by a large bi-partisan majority.
The three stated purposes contained in this bill are:

1. To provide flexibility to FHA to allow the insurance of housing loans for low and moderate income home buyers during all economic cycles in the mortgage market;

2. To modernize the FHA mortgage insurance program by making it more reflective of enhancements to loan-level risk assessments and changes to the market; and

3. To adjust loan limits to reflect the rising house prices and the increased costs associated with new construction.

ANALYSIS:
This bill addresses the perceived weaknesses of the program: its rigidity, its inability to uses risk based criteria., and its low loan amounts. Taking Chicago as an example, FHA insured loans for a single family home are set at a maximum of $275,200. This amount is low compared to the $417,000 limit Fannie Mae and Feddie Mac. Borrowers looking to finance their purchases or refinances above the $275,200 are excluded from FHA insurance for single family homes.
The proposed law that passed The House of Representatives will allow FHA to cover more borrowers and therefore fulfill its mandate as insurer/provider of the affordable housing.

Keep in mind that this is not yet a law, the final details will come after the US Senate votes and the President signs it. It is a good start toward addressing some of the problems plaguing the housing industry.
The combination of legislative efforts such as this ACT and monetary policies by the FED in the long run will bring stability in the critical housing sector.

As always, we keep our ears tuned to market and the economy so you don't have to.
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