House Passes Important Housing, Refinance and Foreclosure Avoidance Assistance in Economic Stimulus Bill
February 1, 2008
Washington, DC - The House of Representatives overwhelmingly passed provisions this week to help consumers take advantage of increased mortgage market credit, stabilize the housing market and help homeowners refinance out of bad loans. The legislation, passed as part the economic stimulus package, will allow the Federal Housing Administration (FHA) and the Government Sponsored Enterprises (GSE) of Fannie Mae and Freddie Mac to temporarily increase their loan limits to serve a greater number of areas of the country. In fact, by making these changes to the FHA and the GSE programs, Congress is making more financing available to a large number of moderately priced homes in many communities across the country. In addition, the bill raises artificial caps, which effectively prohibits the use of FHA and GSE loans in higher priced markets such as Massachusetts, California and New York.
"The temporary increase in FHA loan limits is an absolutely critical element of the House bill," said Rep. Maxine Waters (D-CA), Chairwoman of the Housing and Community Opportunity Subcommittee. "While I would have preferred the stimulus package to incorporate a permanent increase and other elements of the FHA Modernization bill passed by the House, this temporary measure will ensure that FHA can help distressed borrowers and new homeowners in high cost housing markets like California at this critical time."
“For years, Chairman Frank and I have worked to create affordable housing opportunities for families across the country by increasing the FHA and GSE conforming loan limits. With the average home price in high cost areas like California, New York, and Massachusetts, exceeding the current loan limit, homeowners and homebuyers in these areas have been unable to utilize these important federal housing programs. The loan limit increases included in the economic stimulus package will make safe, conforming mortgage loans available for entry-level homebuyers in all areas of the country,” said Rep. Gary Miller (R-CA).
“Increasing the loan limits is a very important step in stabilizing the mortgage market and helping consumers refinance,” said Chairman Frank. “I look forward to working with the Senate to make these changes permanent.”
A major cause of the credit crunch and the economic slowdown has been, and continues to be, losses by lenders in the subprime mortgage markets and declining property values. These losses caused a substantial tightening in the general mortgage markets, leaving borrowers seeking to refinance or purchase new homes – and lenders seeking financing to make new loans – with few options. Specifically, the changes passed will provide:
- One-year Increase in FHA’s Ability to Guarantee More Loans. Currently borrowers in many parts of the country are cut off from FHA financing. This revision would boost FHA loan limits to 125% of an area’s median home price (but not to exceed $729,750) for 2008. This will provide needed mortgage financing to borrowers in markets where such funds are currently unavailable or limited. According to a 2007 GAO report, during the recent housing boom (where the number of nationwide loans rose), the total number of FHA loans fell from 763,584 in 2001 to 286,470 in 2005. “FHA’s market share in terms of numbers of loans fell from 19 percent in 1996 to 6 percent in 2005, with almost all of the decline occurring since 2001.” This will help FHA return to its traditional role in housing finance.
- Temporary Increase in GSE Conforming Loan Limits. Similarly, the stimulus package will provide for a temporary increase for the GSEs conforming loan limits to match the new levels established for the FHA. Currently Fannie Mae and Freddie Mac are only able to purchase loans under $417,000. Loans with balances above that limit have fewer buyers and are significantly more expensive and difficult to finance. Even when financial institutions are willing to make these loans, because there is no secondary market for them, they cannot sell the loans and fund new ones. By permitting the GSEs to buy these loans, this change would provide vital liquidity to mortgage markets where funds are currently unavailable or limited.