Expanding the American Homeownership Act

A year after its defeat in the Senate, a bill that would reform the Federal Housing Administration was reintroduced late last month in the U.S. House of Representatives.

The “Expanding the American Homeownership Act” would ease down payment requirements and increase loan limits for would-be home buyers. The same measure passed the House last summer but fell to defeat in the Senate. Undeterred, U.S. Rep. Judy Biggert, R-Ill., introduced the bill March 29.

“Foreclosures in the sub-prime market are on the rise and too many Americans are in the red,” the congresswoman told Reuters. “My bill will give low- and moderate-income borrowers a safer alternative to the kinds of sub-prime loans that quickly go south.”

Borrowers with less than stellar credit have proved a source of concern for market watchers and markets themselves in recent weeks. The legislation is aimed at curbing payment delays and foreclosures in the subprime mortgage market.

Between 1996 and the end of last year, the FHA share of new mortgages slipped from 9.1 percent to just 1.8 percent, according to Inside Mortgage Finance.

According to Reuters:
Subprime lenders came to dominate the market for borrowers with damaged credit in those years, but troubles in the sector have increased calls for FHA reform.

The reform package would, in part, relax down payment demands and loosen loan limits, which are now pegged at 95 percent of the median home value in a local area.

By offering to insure loans on low-cost homes, FHA helps borrowers win more affordable mortgage payments. Subprime lenders, on the other hand, charge higher rates for their loans.