Volume 46, Issue 5 - June 2007

Industry Stats
NAHB Calls for FHA to Increase Authority

Current Federal Housing Administration (FHA) subprime lending terms are eliminating opportunity for many homebuilders, according to The National Association of Home Builders (NAHB). While the FHA share of the market decreased from 7 percent in 1995 to less than 2 percent in 2005, subprime lending skyrocketed, accounting for 20 percent of the total. The NAHB suggests that providing the FHA with greater authority will increase homebuyer numbers and help reverse some of the stigma recently attached to the subprime market.

Recently NAHB called on Congress to enact legislation that it says would reform and revitalize the FHA single-family mortgage insurance programs. Bill Killmer, NAHB’s group vice president for advocacy, testified before the House Financial Services Committee’s Housing and Community Opportunity Subcommittee, blaming statutory and regulatory constraints for the FHA’s inability to respond to borrower’s needs. The result, Killmer said, is homebuyers end up with inappropriate mortgages.

“Had the FHA been in a better position to respond to changing market forces in the past few years, the subprime situation might not be as severe as it is today,” Killmer says.

Killmer says the FHA single-family mortgage insurance programs could insure fixed-rate, adjustable-rate and hybrid adjustable-rate mortgage loans to borrowers with limited cash reserves and/or slightly-tarnished credit, if granted the proper authority by Congress.

“And this could be done on far better terms than the subprime loans that are making adverse headlines daily,” he says. 

“All too often, significant differences between FHA’s requirements and those for conventional mortgages have been viewed by lenders, appraisers and others as a reverse incentive to use FHA programs,” Killmer says. 

There are currently two FHA revitalization proposals before the subcommittee, H.R. 1852 and H.R. 1752. Killmer says that the NAHB does not favor one bill over the other, but called on Congress to act quickly to empower FHA with the tools to respond to the needs of borrowers. Among the actions NAHB is urging are: allowing the FHA to establish a risk-based mortgage insurance premium pricing structure that rewards higher-risk borrowers who establish a track record of timely payments; granting the FHA authority to establish greater flexibility in setting down payment requirements for its single-family programs as long as they are operated on an actuarially sound basis; and permitting the FHA to extend the maximum loan maturity to 40 years to enable borrowers to reduce their monthly mortgage payments. 

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