FHA Multifamily Loan Limits Raised

The U.S. House of Representatives has passed a comprehensive FHA reform package, which aims to bring new life back into the affordable housing sector and to assist troubled borrowers by providing the market with federally-insured refinancing options.

The House overwhelming passed H.R. 1852, or the “Expanding American Homeownership Act of 2007," on Tuesday. Under the terms of the Act, borrowers have the opportunity to buy homes at lower down payments, refinance under safer loan options, obtain housing counseling, and take part in the FHA's enhanced reverse mortgage program for seniors.

“A revitalized FHA program will help future homeowners realize the dream of homeownership, and will prevent many first-time and inexperienced home buyers from being pushed into loans that are unaffordable or difficult to understand,” said Barney Frank, Chairman of the the Financial Services Committee. “The bill we passed today will help people across America because we have enacted provisions to allow the FHA to insure loans in high cost areas.”

The FHA reform bill includes the following measures:

Lower Down Payments: Including zero or lower down payment loans.

Housing Counseling: Doubles the current funding level for housing counseling.

Subprime Products: Directs FHA to provide mortgage loans to higher risk (but qualified) borrowers, without authorizing unnecessary fee hikes on the borrowers.

Reverse Mortgages: Enhances the FHA reverse mortgage loan program to help seniors pay for health and other expenses. Removes the loan cap to avoid program shutdowns, raising loan limits, and by reducing the maximum fee lenders can charge for these loans.

Multifamily Loans: Raises FHA multifamily loan limits, so these loans can fully fund construction costs in high cost areas, and enhances sale of foreclosed FHA rental housing loans to localities, so that affordable housing can be maintained in local communities.

Affordable Housing Fund: Provides up to $300 million per year from the bill's excess profits for affordable housing, rather than having the money return to the General Treasury.

Higher Loan Limits: Adopts the Frank/Miller/Cardoza amendment that would raise FHA single family loan limits, which now bar loans above 95-percent of the median home price in each local area and shut FHA out of higher cost home markets. The amendment raises the FHA loan limit in each area to the lower of (a) 125-percent of the local area median home price or (b) 175-percent of the national GSE conforming loan limit. The amendment also retains the bill's provision for a nationwide FHA loan floor of 65-percent of the GSE conforming loan limit, and gives HUD authority to raise these loan limit amounts by up to $100,000 “if market conditions warrant.”