In today’s troubled housing market, it’s very reassuring to know that our old friend, the FHA mortgage loan, is still available to home buyers.
In fact, the Housing and Economic Recovery Act of 2008 and earlier legislation made a number of changes to FHA-insured mortgages that will make them even more effective in helping to meet the nation’s housing needs going forward.
Over the past two decades, the popularity and relevance of the FHA’s single-family programs have waned because statutory and regulatory constraints have limited the agency’s ability to carry out its mission of helping spur housing opportunities for America’s working families.
Buyers, lenders, appraisers, and others have generally viewed the differences between FHA requirements and those for conventional mortgages as a disincentive to use FHA programs. In fact, the program and operational requirements, which are established by Congress, have seriously limited the FHA’s ability to deliver the range of mortgage products that are needed to fulfill its housing mission.
With the near collapse of the mortgage market and more restrictive underwriting by Fannie Mae and Freddie Mac, there has already been an upsurge in the use of FHA-insured mortgages. The economic stimulus legislation enacted in February temporarily increased FHA loan limits throughout the country to a maximum of $729,750 for a one-year period, a move that encouraged more buyers to consider FHA mortgages. This trend is likely to continue and increase as the conventional loan market retrenches and the market rediscovers this important mortgage product.
Aiding this surge of interest in FHA-insured loans, provisions in the Housing and Economic Recovery Act of 2008 also make FHA-insured loans more appealing to consumers and will allow the FHA to deliver a range of mortgage products more effectively. The bill:
? Increases the current limit for FHA-insured mortgages to 115 percent of an area’s median home price, up to $625,500. This will enable more creditworthy borrowers to purchase FHA-insured loans in high-cost markets.
? Raises the floor for area FHA loan limits from $200,160 to $271,050.
?Enables the FHA to simplify requirements for condominium loans, which have often been burdensome and have differed significantly from the rules applied to mortgage loans for detached single-family homes.
? Allows the FHA to charge higher mortgage insurance premiums, but places a one-year moratorium on implementation of risk-based mortgage insurance premiums.
? Expands opportunities for seniors to tap into equity in their homes through FHA reverse mortgage loans. The bill creates a higher nationwide uniform loan limit equal to $417,000. It also reduces and caps the maximum fee lenders can charge seniors for FHA reverse mortgage loans and establishes protections to prohibit requiring seniors to purchase other financial products in conjunction with these loans.
Although most changes to the FHA mortgage insurance program were positive, there was also a change that some may view in a negative light. The minimum down-payment requirement for an FHA-insured mortgage was raised from 3 percent to 3.5 percent. This requirement may be an obstacle to some potential home buyers, but it is understandable in light of the massive shake-up the mortgage market is now experiencing due largely to easy credit and minimal requirements for home buyers.
A significant change of great concern to builders is that seller-funded down payments are no longer allowed on FHA-insured mortgages, a move that is hurting the housing market and that the NAHB is working to fix.
Since its inception in the mid-1930s, the FHA has insured more than 34 million home mortgages and 47,205 multifamily project mortgages. Currently, the FHA has 4.8 million insured single-family mortgages and 13,000 insured multifamily projects in its portfolio. Equally important, in the agency’s own words, “[the] FHA is the only government agency that operates entirely from its self-generated income and costs the taxpayers nothing.”
Today, we are seeing a resurgence of interest in this most basic and enduring mortgage; it’s good to know that your old friends are there when you need them.