Every week, 2,000 - 3,000 Second District residents write to me about the issues pending before Congress, and I work hard to respond to each person as promptly and thoughtfully as possible.  On this "Letter of the Week" blog, I highlight constituent letters that are of general interest.  If you'd like to share your own views, please feel free to e-mail me at any time!

"Nancy, I own a mortgage company with 3 branches in your district. We desperately need the FHA Reform Bill to offer FHA home loans to our borrowers in our area that won't qualify for conventional loans, especially since the recent mortgage meltdown. Please advise when you foresee H.R. 1852 becoming law so we can begin offering these loans to our clients. And we ask you to support the passage of this bill. Thanks for all your help."

-- Joe in Berryton, KS

Dear Joe,

Thank you for writing me about H.R. 1852, the Expanding American Homeownership Act.  This bill, which revitalizes the Federal Housing Administration, passed the House on September 18, 2007, and I was proud to vote for it.

The Federal Housing Administration (FHA) serves many good purposes.  It makes homes more affordable.  It makes banks safer.  It makes taxes lower.  All of this it does by insuring home mortgages – to make them more reliable for banks and affordable for borrowers, especially first-time homebuyers.  The homebuyers who use the FHA are people who might have trouble affording mortgages, such as:

• those who choose lower-income careers like teaching, social work, or public safety; or

• those who have other debt like recent graduates with school loans; or

• those who have unpredictable income like farmers.

Lenders such as banks would be understandably nervous about making loans to these people.  The risk is higher that the payments won't be made, so the banks ask for higher rates to compensate. The problem is that these homebuyers are the ones least able to afford higher interest rates.  Under this setup, all of these people might not be able to afford homes. 

Fortunately, we have the FHA.  The FHA guarantees the payments; as a result, the bank offers a lower rate on the mortgage, so the home is more affordable.  In exchange for this service, the FHA charges a small fee to the borrower.  For each of the seventy-three years that the FHA has been around, it has taken in more in fees than it has paid out in guarantees, and the surplus is given to the federal government, which keeps everyone's taxes lower.

Despite its value and reliability, past Congresses allowed the FHA to wither away over the last decade – the number of FHA loans dropped by 62 percent between 2001 and 2005.  Into this vacuum came lots of sub-prime lenders who aggressively marketed loans that often seemed cheaper than they actually were.  Those loans began to go bad this summer, but luckily the new Congress had already begun working on plans to improve the FHA.  This bill, H.R. 1852 is the product of that.  In a way, it's kind of ironic.  The FHA was created as a response to the housing crisis of the Great Depression.  It's a shame that we needed another housing crisis to remind some people how valuable it really is. 

H.R. 1852 strengthens the FHA and gives it much greater flexibility. Specifically, it includes the following provisions:

• Higher limits: Today, there is a ceiling on the amount of a mortgage that the FHA can insure, and it has     effectively shut the FHA out of some of the most-expensive home markets in the country.  These are exactly the markets where first-time home buyers and public servants need the most help.  This bill raises the nationwide ceiling and adds special provisions for high-cost markets.

• More counseling: H.R. 1852 more than doubles the FHA's budget for counseling and makes counseling mandatory for riskier loans and for borrowers with spotty histories.  The counseling helps borrowers make their tight budgets work so that they can make their mortgage payments.  It means more homebuyers stay in their homes, and it means that the FHA has to spend less on guarantees.

• Easing the crisis: Some people falling behind on their mortgages are struggling because their mortgage payments have just jumped significantly.  Under existing law, the FHA can't help anyone whose mortgage is delinquent.  This bill gives the FHA the ability to do so.  This will be especially important in the next few months as many more people discover that their mortgage payments have skyrocketed.

• Helping seniors: A reverse mortgage allows seniors who need money and own their own home to receive monthly payments from the value of their home.  Just as with a regular mortgage, the FHA can help make this less expensive to the homeowner, but its current rules were stopping it from doing much.  H.R. 1852 eases those rules so more seniors can get help.

I believe America is better when more Americans own their own home, and this bill makes that happen.  I was proud to vote for it, and I was glad to see your support.  Thank you for contacting me, and please don't hesitate to contact me again if I can be of assistance.

Sincerely,

Nancy Boyda
Member of Congress