Five Brothers

House Passes FHA Reform Bill


Kristin Campbell

The U.S. House of Representatives passed a bill yesterday that would significantly reform the Federal Housing Administration, making it easier especially for low-income and first-time homebuyers to purchase a house.  The bill would increase the maximum lending limits and lower required down payments.

Ohio Republican Rep. Bob Ney sponsored the bill, which was approved 415-7.  It amends the National Housing Act.

FHA’s loan limit in high-cost areas would go up from 80 to 100 percent of the GSE conforming loan limit and in lower-cost areas, increase from 48 to 65 percent of the conforming loan limit.  In may areas of the country, the existing FHA limits are lower than the cost of new construction, eliminating GHA financing as an option for home in those markets.  According to the FHA, it has been priced out of the market in other areas, such as California, where FHA insured only about 5,000 home mortgages in all of 2005, down 95 percent from 109,000 mortgages in 2000.

The overhaul would also eliminate the currently required 3 percent minimum down payment, reducing another major homeownership roadblock.  According to the FHA, most first-time homebuyers put down two percent or less.

The bill would also create a new insurance premium structure for the FHA, based on risk, that would match the premium amount with the credit profile of the borrower.

“When FHA was formed in 1934, it was an historic event that made homeownership possible for people who had nowhere else to turn,” said Assistant Secretary for Housing-Federal Housing Commissioner Brian Montgomery.  “We are now closer to another landmark – a modernized, flexible FHA that can respond to the needs of today’s low and moderate-income homebuyers who had a helping hand.”

Housing and Urban Development Secretary Alphonso Jackson said he expects that the Senate will also pass the bill.

The FHA is part of the Department of Housing and Urban Development.  It’s designed to provide mortgage insurance in order to shield lenders from potential defaults.

More information about HUD and its programs is available at