Since its creation in 1934, FHA has helped more than 34 million families purchase homes with affordable mortgages and fair payment terms. Despite its largely undisputed spot in the hall-of-fame of government programs that work, the FHA, like any other lending institution, needs to adapt to today's market place. According to Sec. of Housing and Urban Development Alphonso Jackson, the Expanding American Homeownership Act would get the job done. "This important legislation would bring FHA into the 21 st Century and offer hard-working Americans a variety of safe homeownership options at a fair price," said Sec. Alphonso in a press statement.
The Expanding American Homeownership Act would:
- Eliminate the current statutory three percent minimum down payment, reducing a significant barrier to homeownership. FHA's existing down payment requirement does not meet the demands of today's marketplace, where most first-time homebuyers put down two percent or less. The "new" FHA would offer a variety of down payment options.
- Create a new, risk-based insurance premium structure for FHA that would match the premium amount with the credit profile of the borrower. It would replace the current structure, in which there is standard premium amount for all borrowers, while still protecting the soundness of its Insurance Fund. FHA would have the flexibility to charge a lower premium for low-risk borrowers, and to charge higher-risk borrowers a slightly higher premium.
- Increase and simplify FHA's loan limits. FHA's loan limit in high-cost areas would rise from 87 to 100 percent of the GSE conforming loan limit and in lower-cost areas from 48 to 65 percent of the conforming loan limit. This change is crucial in today's housing market. In many areas of the country, the existing FHA limits are lower than the cost of new construction, eliminating FHA financing as an option for buyers of new homes in those markets. FHA has simply been priced out of the market in other areas, such as California, where FHA insured only about 5,000 home mortgages in all of 2005, down 95 percent from 109,000 in 2000.
The House version (H.R. 5121) of the Expanding American Homeownership Act, was introduced on April 6, 2006 and won the unanimous approval of the House Financial Services Committee on May 24, 2006.
As the nation's housing agency, the Department of Housing and Urban Development (HUD) works to increase homeownership by creating affordable housing opportunities, supporting the homeless, elderly, people with disabilities and people living with AIDS. In addition, HUD promotes economic and community development, and enforces the nation's fair housing laws.