Reforms of FHA Loans
Homeownership Act of 1852, also known as FHA Reform or FHA
Modernization, was expanded and approved the U.S. House Financial
Services Committee on May 3, 2007. This expansion will bring
the FHA more prospective buyers and allows more low to moderate-income
families to obtain their own home.
Highlights of the Legislation:
Increase for FHA Mortgage Limits:
the limit for lower cost areas from 48% to 65% of the government
sponsored enterprises (GSE) conforming loan limit, permitting
the FHA to insure newly constructed homes.
Increase the limit for higher cost areas from 87% to 100%
of the conforming limit with individual local limits set at
the median price of a home in each area.
Borrowers in high cost housing markets who don't qualify for
prime mortgages have no option other than high cost loans
because of the FHA's current mortgage limits.
the FHA's 3% minimum cash investment requirement and down
Provides FHA borrowers a range of options to control the amount
of their down payment and mortgage payment based on their
immediate and long-term goals.
the maximum loan term from 30 to 40 years. The longer loan
term will decrease monthly payments yet build homeowner equity
through a fully amortized loan.
the 2.25% upfront and .55% annual premium caps allowing the
FHA to raise or lower the premium to match the borrower's
risk. The FHA borrower gets a market interest rate loan; the
risk is mitigated through the premium. "High cost loans"
offset risk in the interest rate, sometimes 3% to 8% above
market. For example, a 3% FHA upfront premium for a $100,000
mortgage is $19 per month. A 3% interest rate increase (6.5%
to 9.5%) for the same mortgage is $156 per month. The difference
of $137 would allow the use of $21,700 more towards the purchase
of a house. The annual FHA premium charge is eliminated after
5 years and 22% property equity.
the definition of "mortgage" to insure condominiums
as a single family unit rather than a multifamily project.
The change will align the FHA to the industry and streamline
processing, potentially reducing condominium costs.
the FHA cap on the number of loans that can be insured.
Sets a national loan limit at the GSE conforming rate so that
all seniors have equal access to t heir equity regardless
of where they live
Permit seniors to purchase a home and get a HECM in one transaction,
so that seniors can easily move to more suitable housing.
Currently borrowers must complete their home purchase transaction
and HECM separately, incurring additional costs.