FHA Reform Needed to Ensure a Viable Mortgage Alternative

The Federal Housing Administration must change to reflect consumer needs and demands, and provide many borrowers with a safer alternative to riskier home loan products that are on the market today, according to the National Association of Realtors.

In testimony this week before the House Financial Services Subcommittee on Housing and Community Opportunity, NAR spokesperson Iona Harrison, a Realtor from Maryland, said:

“Now is the time the country needs FHA. As subprime loans reset and real estate markets have cooled, a reformed FHA would be perfectly positioned to offer borrowers a safer mortgage alternative and help bring stability to local markets and local economies.”

NAR has supported legislation that proposes to increase loan limits, eliminate the statutory three percent minimum cash down payment, allow FHA flexibility to provide risk-based pricing, and provide changes to the condominium program.

“Realtors stand ready to work with Congress to advance the proposed legislation and to help many more families achieve the dream of home ownership,” said Harrison.

NAR believes that increasing FHA mortgage loan limits would help first-time home buyers, minority buyers and others who cannot qualify for conventional mortgages. Raising loan limits will also help people living in high cost areas because the current low FHA limits make the program unusable.

“Increasing the loan limits can help firefighters, teachers and police officers buy a home in the communities they protect and educate,” Harrison said.

Eliminating the three percent minimum down payment on FHA home loans can also have positive results for many of these buyers.

NAR noted that the universal and consistent availability of FHA loan products is the principal hallmark that has made mortgage insurance accessible to individuals regardless of their racial, ethnic or social characteristics during periods of prosperity and economic depression.

“The FHA program makes it possible for higher risk, yet credit-worthy, borrowers to get [prime rate] financing,” said Harrison.

In a letter sent earlier this month to Alphonso Jackson, Secretary of Housing and Urban Development, NAR President Pat Vredevoogd Combs asked that FHA waive its requirement that a homeowner’s mortgage be current in order to refinance into an FHA loan product. That could help many families suffering from the negative subprime market and “many families may be able to skirt foreclosure and keep their homes,” said Combs.

NAR believes that a strong and viable FHA is an important component to a strong and vital housing market.