The so-called “The FHA Modernization Act of 2007″, approved overwhelmingly by a 93-1 vote, would cut the required down-payment for FHA loans in half, from 3% to 1.5%, and also raise the maximum loan amount the FHA can insure.
The Senate bill will also raise the maximum loan size the FHA can insure in high-cost areas from $362,790 to $417,000, the conforming limit currently used by mortgage financiers Fannie and Freddie.
Additionally, it will allow the FHA to insure more reverse mortgages, simplify requirements for condominium loans, and extend the maximum loan term to 40 years.
A similar bill was passed by the House in September, so now the two chambers will have to come to an agreement before sending the final bill to the White House for approval.
“We’re pleased that the U.S. Senate passed a bill today that would give FHA some of the additional flexibility it needs to provide more families with a safe, affordable mortgage financing option,” White House Press Secretary Dana Perino said in a statement.
The FHA, created in 1934 to help low-income borrowers, currently insures about 3.7 million mortgages, but its share of the single-family mortgage market has dwindled to roughly 4 percent, down from 19 percent over 10 years ago as subprime lending gained in popularity.