By Eugene T. Lowe
August 7, 2006

The House of Representatives July 25 passed H.R. 5121, which modernizes the Federal Housing Administration (FHA). The bill with bipartisan sponsorship was introduced by Representatives Bob Ney (OH), Gary Miller (CA), Maxine Waters (CA) and Barney Frank (MA). In general, the bill will make FHA more efficient and streamlined enabling the agency to compete with the private sector in the mortgage industry.

Specifically, the bill titled the Expanding American Homeownership Act of 2006, would raise loan limits in high cost housing markets, allow flexible downpayments with respect to the goals of the borrower, and eliminates the cap on the number of loans that can be insured.

The Mortgage Bankers Association (MBA) Chairman Regina Lowrie said upon passage of the bill that “FHA has the potential to expand homeownership to underserved consumers, specifically first-time, minority and low- and moderate-income borrowers, but there are certain regulatory and legislative changes that need to be implemented to ensure the viability of FHA and the long-term success of its programs.”

At the 74th Annual Meeting in June, the Conference of Mayors adopted two separate resolutions calling on Congress to pass legislation modernizing the Federal Housing Administration, its operations, processes, and technologies. Both resolutions strongly asserted that FHA since its inception in 1934 has “played a pivotal and historical role in providing affordable rental opportunities and assisting tens of millions of Americans to become homeowners, especially those who are underserved by the private market.” But over the years, the resolutions contended: “FHA’s lack of flexibility to create new mortgage products, such as flexible downpayment single family loans” led to fewer people using FHA-insured mortgages. Borrowers instead turned to high cost and poorly structured products. The House passed bill is expected to address these concerns.