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Congress May Help Homeowners In Trouble

Bills would raise limits on federal loans for homebuyers

by Martin H. Bosworth
ConsumerAffairs.com

September 19, 2007

Pending bills would raise the limits of loans backed by the Federal Housing Administration (FHA), in order to reach higher-priced housing markets that may now be too expensive to qualify for government loans.

The Senate Banking Committee voted today to pass the "FHA Modernization Act of 2007," which would raise the limit of loans guaranteed by the FHA from $362,000 to $417,000.

The bill, cosponsored by Senators Chris Dodd (D-CT) and Richard Shelby (R-AL), would also enable the FHA to support loans made with lower down payments, but would require counseling for prospective buyers who are putting little or no money down prior to the purchase.

Dodd, the chairman of the Senate Banking Committee, said the Act was necessary because, "The mortgage markets -- particularly the sub-prime market -- are in the midst of a meltdown.

"We need to make sure that credit is available, including for sub-prime borrowers, on fair terms so that the people of this country have an opportunity to build wealth for the future," Dodd said in published reports.

The vote came a day after the House of Representatives voted to pass its own "Expanding American Homeownership Act of 2007," which would raise FHA loan limits to as high as $500,000 in the priciest housing markets.

The House bill, introduced by Reps. Maxine Waters (D-CA) and Barney Frank (D-MA) would also authorize FHA support for low or no down-payment loans, increased mortgage counseling, and approval for qualified borrowers who might otherwise be forced to use subprime loans to buy homes.

“A revitalized FHA program will help future homeowners realize the dream of home ownership, and will prevent many first time and inexperienced home buyers from being pushed into loans that are unaffordable or difficult to understand,” said Frank, who chairs the House Financial Services Committee.

“The bill we passed today will help people all across America because we have enacted provisions to allow the FHA to insure loans in high cost areas.”

The Bush administration has pledged its support to expanding the FHA's authority, but the White House said it was "strongly opposed" to the higher loan limits in the House version of the bill.

The administration said that it supports raising the maximum limit to $417,000, and the FHA "should remain targeted to traditionally undeserved home buyers, such as low-and moderate-income families."

The full Senate must pass the Banking Committee bill before the two bills are reconciled in committee and sent to President Bush to sign.

predatory lending

Both Dodd and Frank have previously called for legislation designed to combat predatory lending and impose stronger regulation on the mortgage market. Dodd's bill would penalize mortgage lenders for steering borrowers to subprime loans when they could qualify for traditional "prime" loans, and would give more power to federal agencies to investigate deceptive lending practices.

Frank supports legislation that would make investors in bonds backed by subprime loans liable if the loans fail.

Congress' actions to combat the mortgage meltdown got a shot in the arm yesterday after the Federal Reserve voted to cut its prime interest rate from 5.25 to 4.75 points. The move spurred high jumps in the stock market and oil prices, and is expected to entice consumers to take out more loans due to the lower rate.

But foreclosure tracking agency RealtyTrac also reported that foreclosures for August 2007 were up 115 percent from the previous year, the busiest month for foreclosures in the organization's history, and an indicator that the mortgage meltdown is far from over.

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