House Financial Services Committee Passes Comprehensive FHA Reform
|On May 3, 2007 House of Representatives Financial Services Committee sent out the following press release – however this press release has not been updated to reflect that the National Reverse Mortgage Lenders Association was ultimately successful in seeking an amendment that reduces fees to seniors but does not change the basis of origination fees from maximum claim amount to principal limit.ORIGINAL May 3, 2007 Press Release –
Washington, DC – The US House Financial Services Committee today passed H.R. 1852, the “Expanding American Homeownership Act of 2007” introduced by Representative Maxine Waters, Chairwoman of the Subcommittee on Housing and Community Opportunity, and Barney Frank, Chairman of the Financial Services Committee. The bill would revitalize the Federal Housing Administration (FHA) to restore its historical role in ensuring critically needed mortgage loans for low and middle income families by authorizing zero down payment loans, directing the Department of Housing and Urban Development (HUD) to serve higher risk borrowers who would otherwise turn to predatory and high priced mortgage loan alternatives, and by raising loan limits so that FHA can serve high cost housing markets. The bill now awaits a vote by the full House of Representatives.“The passage of this bill is a major step towards making FHA relevant again in today’s unstable mortgage market where low and moderate income borrowers have been squeezed into unaffordable loan products with no safe options for refinancing, or for entering the housing market as first time, particularly in high cost areas of the country,” said Rep. Maxine Waters, Chairwoman of the Subcommittee on Housing and Community Opportunity. “I applaud Chairman Frank for passing this bill out of committee and I call on the Senate to work quickly to modernize FHA and help strengthen the housing market and the economy, as soon as possible.”Specifically, the bill modernizes the FHA and brings it into the realities of the housing market in the 21st century by:
The bill includes a number of important changes to the version of the bill that passed the House last year. The bill eliminates the fee hikes from last year’s bill for higher risk borrowers that continue to make a down payment, scaling back the maximum annual fee from 2% to .55%. This would reduce fees for a hypothetical family buying a $300,000 home by over $20,000, compared to the bill enacted last year. Unlike last year’s version, the bill would also require the additional upfront FHA premium charged to higher risk borrowers be rebated to borrowers that make five years of timely mortgage payments, a rebate of at least three quarters of a percentage point ($2,250 on a loan of $300,000).
The bill also adds a number of homebuyer protections not included in last year’s bill for families taking out riskier zero down payment loans, and for borrowers who represent a higher credit risk. Specifically, the bill gives HUD authority to require pre-purchase counseling for riskier borrowers, requires a number of disclosures spelling out the costs and risks of zero down and lower down payment loans, and requires borrowers to receive notice of availability of counseling in the event they fall behind in their loan payments.
The bill includes a provision not in last year’s bill authorizing appropriations for affordable housing fund purposes equal to the net profits (“net negative credit subsidy”) created by the bill, after first funding an increase in housing counseling from $42 million up to $100 million. Finally, the bill includes a provision, also not in last year’s bill, that authorizes loan limit increases for FHA rental housing loans in high cost areas, where current FHA loan limits do not keep pace with local construction costs.
During committee consideration of the bill, the members agreed to amend the bill in the following ways:
– AUGUST 8, 2007
After originally posting this press release in my blog I was contacted by John K. Lunde of Reverse Market Insight, Inc. whose firm provided analytical support for this effort.
Here is the letter from John K. Lunde
I found your blog post this morning about passage of the FHA modernization bill and just wanted to point out that you might have dated information on the subject of reverse mortgage fee implications in the bill. Specifically, the section below:
“An amendment by Reps. Marshall and Brown-Waite to cap loan origination fees on FHA reverse mortgage loans at 2% of the amount that can be borrowed upfront, which would reduce costs for seniors citizens compared to the current 2% cap on a much higher baseline, the maximum mortgage amount.”
While this was the early wording of the bill, it would have significantly disadvantaged the senior and NRMLA vigorously contested the rationality of charging older seniors higher loan origination fees due to their higher initial principal limit. My firm provided analytical support for this effort and NRMLA was ultimately successful in seeking an amendment that reduces fees to seniors but does not change the basis of origination fees from maximum claim amount to principal limit.
Peter Bell posted an entry on the NRMLA website to address this activity in more detail, including the full rationale for the industry’s position. Let me know if you have any questions and hopefully this helps you to clear up any confusion regarding reverse mortgage implications in the bill. Thanks!
August 8, 2007
FHA HECM to get a boost from US House of Representatives