| |
| |
|
|
| FHA Modernization |
|
| |
|
 |
| |
|
| Brian Montgomery, Assistant Secretary for Housing, has testified before the House
Financial Services Committee that modernizing the Federal Housing Administration is
of paramount importance for America's "troubled sub-prime borrowers." The FHA has
been insuring mortgage loans since the 1930’s during the depths of the Great
Depression, but these loans became less popular with the advent of the sub-prime market
in the 1990’s. |
|
|
| |
|
However, sub-prime mortgage loans have proven to be extremely risky for borrowers
with bad credit or inadequate income, a problem which has resulted in a recent surge of
foreclosures. Home foreclosures not only force borrowers out of their place of residence,
but also cost the lender big money and also devastate the borrower’s life and family.
By approving of the modernization reforms, Montgomery claimed that the "FHA could
potentially assist tens of thousands more borrowers who need an exit strategy from their
sub-prime mortgages" and their rising adjustable rates. Some of the proposed changes
include: |
|
|
| Proposed FHA Modernization Changes |
| |
| |
| • |
Removal of the mandatory 3% down payment, which many borrowers cannot
afford. The FHA plans to switch to a more flexible down payment option. |
| • |
Increasing the limits of FHA mortgage loans. Traditionally, FHA had standard
loan limits which were often lower than those of sub-prime mortgage loans. In
areas of the country where housing costs are relatively high, many individuals
looking to purchase a home could not, as the old FHA loan limits were below the
median house prices. With these changes, people in states like New York and
California will be able to obtain an FHA loan that will have a loan limit high
enough for homes in those areas. |
| • |
Creating a new risk-based structure. Currently, all borrowers who apply for an
FHA loan are subject to a standard insurance premium. In the new structure, the
premium would be based on the credit profile of the borrower and would shift up
or down based on that borrower's level of risk to the lender. |
|
|
|
|
|
|
|
|
|
|
|