Thursday, 20 September 2007 08:37
House of Representitives Making Moves to Overhaul the FHA
This week the US House of Representatives is
making moves to overhaul the FHA, or Federal Housing Administration, with the
passage of a piece of legislation. The Bill, 348-72, backs mortgages for
moderately priced homes. The bill also will allow some borrowers to refinance
existing mortgages through the FHA as a way to prevent them from defaulting on
their loans. The House also passed an amendment to the legislation sponsored by
Rep. Dennis Cardoza, D-Merced, that would raise the loan limit to the lower of
either 125 percent of an area's median home price or 175 percent of the
national loan limit.
The program begins with the federal government promising
to pay the remainder of a mortgage if a borrower defaults. In return, the
lender must pay the government what amounts to an insurance premium, the cost
of which the lender passes on to the borrower. If borrowers make their mortgage
payments and pay the insurance premium for several years, the premium
eventually goes away; the borrower effectively has earned her right to a
"normal" mortgage for the rest of the loan's term. Borrowers need not
have stellar credit to qualify for FHA loans, but they go through a fairly
rigorous income check in which they must produce bank statements, pay stubs,
tax returns and the like. And, unless they are first-time buyers, they must put
down at least 3 percent of the loan cost, or a little more than $10,000 in
cash. President Bush opposes the high loan limits set by the House bill,
preferring a smaller increase, from about $362,000 to $417,000. Although in California, and other higher end housing markets through
out the US,
these loan amounts do not necessarily seem high.
