The House of Representatives passed the Expanding America’s Homeownership Act of 2007 and it will most likely be passed by the Senate and signed by the President after some minor adjustments. This is the biggest change that has occurred in the FHA since its inception. If the Chamber has its way, this would actually change FHA’s initial purpose from being an agency formed to help low-income households to one that helps nearly all Americans own and maintain their homes.
Increased FHA Loan Limits
Why am I saying this? The FHA has always been focused on helping poor and low-income areas to be able to buy houses. The new bill now before the Senate proposes increasing loan limits from $200,000 to $350,000 up to $700,000 in areas with high median home prices. I personally don’t know of any low-income people who own $700k homes, except for those people who lied on their loan applications and “claimed” they made $10,000 a month as a janitor at Wal Mart and actually got the loan. Fortunately, Bush has declared that he will not allow this to happen. He intends to keep the purpose of FHA intact. I think the Senate will do the same. Bush plans to keep the FHA loan limit at $417,000 or less. We should see each other very soon.
Elimination of financial audit requirement for brokers
This is the second largest change for FHA. If approved by the House, it would open the door for about 90% of the nation’s mortgage brokers who were previously restricted from becoming an FHA-approved broker (loan agent) due to the cost barrier. Most people don’t realize it, but audited finances can cost anywhere from $2,000 to $20,000 for the average small broker to obtain. FHA-required audited financial statements must be completed by a peer-reviewed CPA and minimum net worth must be $50,000 in accordance with FHA’s strict net worth calculation guidelines. Now, 90% of brokers who did not have the time, money and resources to put together audited financial statements, can submit a bond in lieu of audited financial statements. A bond is obtained through insurance companies and covers the consumer or third party in a transaction and is paid by the mortgage company if it is used by the state to pay a consumer or third party. The new bill proposes a bond between $50,000 and $100,000. Most analysts would agree that something similar to this will be in the amended bill when it passes the Senate.
What will be the effect of this bill
Whether the FHA loan limit increases to $700,000 in some areas or to $417,000, the bill will dramatically change the purpose of FHA. Many people will look to FHA as a place to get a loan that conventional lenders cannot provide. This is possible through FHA initial mortgage insurance that can reduce the risk of higher debt-to-income and loan-to-value ratios. We will also see a big increase in FHA advertising when most mortgage brokers get access to be FHA approved brokers. Unfortunately, the Chamber tends to think that this will be the solution to the current problems in the market. This is a great start, but I think it will take a lot more than this to adjust to all the lies and deception that have occurred in the last 5 years in the mortgage industry.