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FHA Reform Bill Passed

A new bill that will direct up to $300 million a year to an affordable housing fund effortlessly passed in the House today by a vote of 348 to 72.

The bill is intended to tackle the impending mortgage crisis involving roughly two million adjustable-rate mortgages which are due to reset to higher rates during the next two years.

“We do not have a general program for helping build affordable family housing, and that’s what this bill would do,” said Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee.

The so-called “Expanding American Homeownership Act” will eliminate the down payment requirement on FHA loans, which is currently set at a 3% minimum.

The bill also comes with an amendment that would raise the conforming loan limit from $417,000 to as high as $729,750, a move that would boost positive refinance activity in more expensive areas of the country.

In a statement Monday, the Bush administration remained skeptical about the bill, commenting that the “program should remain targeted to traditionally underserved homebuyers, such as low and moderate-income families.”

But many of the problems we’re seeing are in parts of the country were the majority of at-risk homes are valued much higher than the relatively low conforming limit.

“Because FHA has been driven from those parts of the country where consumers are most in need of affordable financing, such as California, millions of borrowers have been forced to turn to high-cost financing and other non-traditional loan products,” wrote NAMB President George Hanzimanolis, in a letter to lawmakers.

Unfortunately, homeowners in expensive metropolitan areas in states like California, Arizona, Florida, and New York have few options to refinance their existing mortgages in the current lending environment.

And with the secondary mortgage market in its current state, most lenders won’t touch anything that is non-conforming.

Ultimately, Bush would have to sign a final version of the bill for it to become law, which is clearly a tough hurdle to climb.

It has already seen Republican opposition, including a motion by Rep. Jeb Hensarling, R-Texas to kill the fund, which was rejected.

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