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Special Reports
Downpayment Assistance Programs
Support for the New Homeownership Bill Grows
Aiming to eliminate the 3% minimum downpayment.
By Amilda Dymi
Judging from the support given them from some of the country's most important
entities, current efforts to update housing legislation so it best serves market needs and customer demand for
affordable housing and financial assistance, including downpayment funds, appear to be on the right track.
The U.S. Housing and Urban Development secretary, Alphonso Jackson pledged his "full support" for "The
Expanding American Homeownership Act" introduced in the United States Senate by Senator Jim Talent of Missouri.
In a recent statement Mr. Jackson called it a "far-reaching proposal" to modernize FHA that "will
enable FHA to reach more prospective borrowers and allow millions more low- and moderate-income families to achieve
the American dream of homeownership." Since its creation in 1934 FHA has helped over 34 million families become
homeowners, he noted, but the new legislation "would bring FHA into the 21st Century."
Mr. Jackson commented that the Act aims to eliminate the current statutory 3% minimum down payment, "reducing
a significant barrier" to homeownership. Also, "FHA's existing down payment requirement does not meet
the demands of today's marketplace, where most first-time homebuyers put down 2% or less. The "new" FHA
would offer a variety of down payment options," he said in his statement. (The House version of the Expanding
American Homeownership Act, H.R. 5121 enjoys the bipartisan support of 67 cosponsors and was unanimously approved
by the House Financial Services Committee on May 24, 2006.)
New legislation benefits include the creation of a new, risk-based insurance premium structure for FHA that, according
to Mr. Jackson, which would match the premium amount with the credit profile of the borrower. "It would replace
the current structure, in which there is standard premium amount for all borrowers, while still protecting the
soundness of its Insurance Fund. FHA would have the flexibility to charge a lower premium for low-risk borrowers,
and to charge higher-risk borrowers a slightly higher premium," he stated.
Moreover, FHA loan limits in high-cost areas would rise from 87% to 100% of the GSE conforming loan limit and in
lower-cost areas from 48% to 65% of the conforming loan limit. This change is something the HUD secretary finds
crucial in today's housing market since in many areas of the country existing FHA limits are lower than the cost
of new construction, pricing out many homebuyers. California is one example, he said, where FHA insured only about
5,000 home mortgages in all of 2005, down 95% from 109,000 in 2000.
The country's bankers have joined Mr. Jackson in supporting legislative changes that will help produce more affordable
housing and help increase homeownership among borrowers of lesser means.
Earlier in June the Mortgage Bankers Association applauded new legislation "that would empower the Federal
Housing Administration to become a more nimble and efficient provider of financing for affordable homeownership
and rental housing."
The S. 3173, "The 21st Century Housing Act," introduced by Senator Hillary Rodham Clinton (D-NY), proposes
significant changes to the National Housing Act, under which FHA is operated. Key changes include the elimination
of the minimum cash investment required by the borrower, which would allow FHA to offer a zero downpayment product.
The authorization to use FHA revenues above a certain threshold for investment in improving FHA's technology, and
higher multifamily loan limits that help expand affordable rental housing production were also included.
It follows another bill also introduced by Senator Clinton, the S. 2597, "The Federal Housing Fairness Act
of 2006," designed to raise FHA loan limits in high cost areas like New York and California. "As mortgage
bankers, we look to programs like the FHA to help us provide even more options to consumers and help bridge the
affordability gap faced by many first-time buyers, and minority and low- and moderate-income families," said
Regina M. Lowrie, chairman of MBA and president of Gateway Funding Diversified Mortgage Services.
"S. 3173 will make the changes necessary to ensure that FHA continues its
good work in partnership with the mortgage lending community to achieve our joint goal of providing affordable
housing and financing."
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