Background
Created in 1934, the Federal Housing Administration, generally known
as "FHA", provides mortgage insurance on loans made by FHA-approved
lenders throughout the United States and its territories. FHA provides
stability and liquidity in the market in order to broaden homeownership
and to stimulate the building industry. Since its inception, FHA has
insured more than 34 million loans and is the largest insurer of
mortgages in the world.
Republican-sponsored legislation to modernize FHA in a manner that
decreases premiums for borrowers and increases access to homeownership
for low- and middle-income citizens passed the House by a margin of
415-7 on July 26, 2006. While Ranking Member Bachus and Congresswoman
Judy Biggert (R-IL) introduced legislation identical to the FHA reform
bill passed by the House last year, Committee Democrats introduced
their own bill - H. R. 1852, the Expanding American Homeownership Act
of 2007 - which passed the Financial Services Committee by a vote of 45
- 19 on May 3, 2007. The legislation would:
- Increase FHA loan limits in high cost areas of the country like California, New York, and Massachusetts.
- Authorize zero down and lower down payment FHA loans.
- Direct FHA to underwrite to borrowers with higher credit risk than FHA currently serves.
- Permanently eliminate the current statutory volume cap on FHA reverse mortgage loans.
- Reinvest increased FHA profits created by the bill in housing counseling.
- Create a funding source for Chairman Frank's proposed "National Housing Trust Fund" using increased FHA receipts.
Talking Points
While FHA reform should be a priority for Congress, Democrats are trying to achieve it in a fiscally irresponsible way.
Rather than devote the increased revenues that FHA reform will bring
towards deficit reduction, Democrats are - for the second time this
year - using unrelated legislation as a vehicle to create yet another
federal housing program.
Republicans gave Committee Democrats a chance to protect the Social Security Trust Fund - and they said "no."
During debate on the bill, Republicans offered an amendment to disallow
use of excess funds generated by the FHA program for the affordable
housing grant program until the federal government ceases tapping the
Social Security surplus. It failed on a party-line vote.
Inclusion of a National Housing Trust Fund unnecessarily
clouds the legislation's main objective: to modernize the way the
73-year-old Federal Housing Administration does business.
Rather than follow the consensus-building approach demonstrated by
House Republicans last year, Democrats are interjecting controversy in
what should be bipartisan legislation.