The U.S. Senate on Friday, December 14, 2007, passed S. 2338, the FHA Modernization Act with a 93 to 1 votes, which will reform the Federal Housing Administration (FHA) to give home buyers a safe, low-cost alternative to subprime loans. This is a huge victory for REALTORS® who have lobbied Congress aggressively all year to pass the FHA reform and provide troubled homeowners with safe and affordable refinancing options.
FHA insured loans have been mentioned as a possible solution for borrowers who may be unable to make payments on their current adjustable rate mortgages when their interest rates increase over the next year. The current FHA restrictive loan limits, however, made that impossible for many of those borrowers. This Senate version of FHA reform would raise the limit on FHA loans from the $362,000 limit to at least $417,000 which is the current limit on Freddie Mac, Fannie Mae, and VA loans. This legislation would also reduce the minimum down payment that home buyers must come up with to 1.5 percent of the appraised value of the home, down from the current 3 percent which will help home buyers to qualify for an FHA insured home loan.
The FHA estimates that this loan limit increase along with loosened underwriting standards which were announced by the president several months ago could help some 200,000 plus borrowers who are facing foreclosure.
In October the House of Representatives passed its own FHA legislation similar to this one passed in the Senate, but the two bills differ significantly. The House bill would raise the loan limit as high as $829,750 in certain areas of the country, including California. The biggest difference is a feature of the House bill which establishes a new housing trust fund for troubled borrowers and would require FHA to contribute to it.
A conference committee will now meet to resolve the differences between this Senate legislation and the one passed by the House of Representatives before a final version is sent to the president for his signature.