Legislation would modernize Federal Housing Administration

The FHA Modernization Act, proposed to the House Subcommittee on Housing and Community Opportunity in April, would modernize the FHA and make the administration more adaptable to current market conditions.

“FHA was created during the Depression to stimulate the housing market at a time when homeownership simply wasn’t a reality for most people,” said Brian D. Montgomery, assistant secretary for housing, in a news release.

“But now it needs to be able to adapt to today’s marketplace. A new, modern-era FHA would offer many hard-working Americans a variety of homeownership options that are safer and at a fair price.”

The legislation would change the FHA in a number of ways, including:

• Creating a new risk-based insurance premium structure that would match premium amounts with borrowers’ credit profiles;

• Eliminating the current 3 percent minimum down payment; and

• Increase and simplify FHA loan limits, making loan funds available to more potential borrowers.

The legislation also would reform the FHA Manufactured Housing program by eliminating limits to how much a lender can recoup from mortgage defaults. Having no limits would provide greater incentive for lenders to make these loans.

The proposal would also increase manufactured housing loan limits to more accurately reflect current costs.