The U.S. Senate arrived late to the party but they got there. On the heels of response to the turmoil in the mortgage market from the White House, the Fed, and the House of Representatives, the Senate passed legislation that would overhaul how the Federal Housing Administration (FHA) operates.

The bill, known as S.2338: FHA Manufactured Housing Loan Modernization Act of 2007, passed on Friday by an overwhelming margin of 93-1-Sen. Jon Kyl (R-Ariz.) was the lone senator opposed to the legislation. Connecticut Senator Christopher J. Dodd (D), a presidential contender, has vowed to "continue to fight to enact this legislation to help provide hope and help to American homeowners." Dodd, who is the chairman of the Senate Banking, Housing, and Urban Affairs Committee, is also the author of the legislation.

Key provisions of the FHA Loan Modernization Act include:

  • Increasing loan limits;
  • Reducing downpayment requirements;
  • Expansion of the Home Equity Conversion Mortgage (HECM) or reverse mortgage program;
  • Enhancing counseling for low-and moderate-income homeowners who are having trouble making mortgage payments;
  • Providing an alternative credit scoring pilot program to rate borrowers with "thin" credit histories;
  • Creating a homeownership preservation program that would require the Secretary of HUD and the FHA Commissioner to work with the industry and non-profits to help troubled homeowners keep their homes;
  • Providing enhanced mortgage fraud protection;
  • Earmarking $25 million to improve technology; and
  • A multifamily premium freeze that prohibits HUD from raising FHA premiums.

The Senate vote garnered the approval of the National Association of Home Builders (NAHB), but the association stressed that the Senate and the House will need to cooperate to push the bill through before 2008.
"The nation's home builders applaud the Senate action to modernize the FHA to allow the agency to carry out its mission to spur housing opportunities for America's working families," said Brian Catalde, president of the NAHB. "The measure would offer borrowers a safe and fair mortgage alternative to the volatile subprime market. We urge the House and Senate to move quickly to iron out differences between their bills and bring this legislation to the President's desk before year-end."

Click here to view the full text of S.2338: FHA Manufactured Housing Loan Modernization Act of 2007.