NAR Call for Action: Market Conditions Demand FHA Reform Now

The increased loan limits for FHA that were included in the Economic Stimulus package are set to expire at the end of the year. NAR supports an FHA Reform Bill that includes realistic and permanent increases in the loan limits. 

Early evidence shows that the increased FHA loan limits are providing a much needed infusion of stability, liquidity and security into the market. If Congress lets the new limits expire, the fragile housing market will once again be thrust into a period of turmoil.

Don't let Congress stop progress through inaction. Tell Congress that realistic loan limits that permanently help all areas of the country are needed now.

Sample Letter for Campaign

Subject: Permanent Loan Limit Increase Key to FHA Reform Bill

Dear [ Decision Maker ] ,

As a constituent and a REALTOR, I want to stress how important it is for FHA reform legislation to be quickly enacted. These bills, passed the House and Senate in 2007, are now stalled in conference. Permanent increases in the FHA loan limits, lowered FHA downpayment requirements, and new opportunities for condominium purchases are needed to create safe and affordable mortgage options for our state's homebuyers and those wishing to refinance. These changes will also provide much needed stability to our local housing markets and economies.

The new loan limits passed in the recently enacted Economic Stimulus bill will expire in less than 10 months. Dramatically reducing these limits at year's end will push our nation's fragile housing markets into turmoil once again. Realistic loan limits that permanently help ALL areas of the country are needed to bring stability to the marketplace.

FHA's downpayment levels led many borrowers to opt for the exotic, risky mortgages that have been the hallmark of the foreclosure crisis. The FHA reform bills will allow FHA to modify downpayment requirements and offer flexible financing to eligible borrowers.

In many areas of the country, condominiums remain the most affordable option for homeownership, but FHA owner/occupancy and documentation requirements, make it very difficult to purchase a condominium using FHA mortgage insurance. The FHA reform bills will move condominium financing programs into FHA's single-family program where they belong and ease the way for condominium purchases.

We cannot wait any further for FHA reform. Pass a permanent FHA reform bill NOW to give American homebuyers and homeowners the peace of mind they so desperately need.

Sincerely,

Campaign Launched:
March 14, 2008


Background Information

NAR supports legislation to modernize the Federal Housing Authority (FHA) single-family mortgage insurance program and make FHA loans an available financing option once again. Had FHA loans been a viable product in the recent past, many families would not have fallen prey to the risky sub-prime mortgages causing record numbers of defaults and foreclosures. 

About Federal Housing Authority (FHA) Reform 

  • The recently enacted economic stimulus package raised FHA loan limits in EVERY district in the country to levels more accurately reflecting home prices.  Twenty-three (23) states today have communities with limits over $417,000. 
  • Since its inception in 1934, FHA has never needed a federal bailout, and has been completely self-supporting.  In fact, FHA has contributed a significant amount of money to the Federal Treasury each year.  An increase in the FHA loan limits only increases the amount of income generated by FHA – income that is used to fund other government programs. 
  • The most recent independent audit confirms that the FHA fund's current economic value is over $22 billion.  In simple terms, this indicates that if the FHA single-family loan program stopped operations today, the current portfolio would be expected to generate $22 billion dollars over the remaining life of the loans in the portfolio above what it would pay out in claims. 
  • FHA is a leader in preventing foreclosures – an important consideration in today's housing market.  FHA's loss mitigation program authorizes lenders to assist borrowers in default.  In 2004 alone, more than 78,000 borrowers were able to retain their home through FHA's loss mitigation program; two years later, nearly 90 percent of these borrowers are still in their homes.
  • FHASecure is a new program which allows FHA to refinance loans for people who have not made all of their payments on their current loan on time due to an interest or payment schedule reset, but who otherwise have good credit. However, the current 3% equity requirement limits the usefulness of this program.  If downpayment requirements were changed, the FHASecure program could help many more struggling families.

Status in Congress

September 28, 2007 - H.R. 1852, the FHA Reform bill, passed the House by a vote of 348-72.

December 14, 2007 - S. 2338, the FHA Reform bill, passed the Senate by a vote of 93-1.

On Wednesday, January 29, 2008, the House of Representatives passed a bipartisan economic stimulus bill (H.R. 5140) that includes temporary increases in the GSE and FHA mortgage loan limits.

The House economic stimulus bill increased the Fannie Mae and Freddie Mac loan limit for loans originated from July 1, 2007 to December 31, 2008, to the lesser of 125% of the area median home price or $729,750.

The House bill also increased FHA loan limits up to the greater of $271,050 or 125% of area median home prices, capped at $729,750 in high cost areas.