Easy Does It
|March 8, 2002|
Permanency Sought For Simplified Down Payment Calculations
By Bridget McCrea
Inman News Features
If U.S. Rep. Bob Ney (R-Ohio) gets his way, the Federal Housing Administration Downpayment Simplification Act, in the form of H.R. 3661, soon will become permanent.
Ney is the author of this legislation, which would make permanent a simplified formula being used by the FHA to calculate single-family FHA loan down payments. His goal is to set in stone a program he believes already has proven its worth.
The program circumvents a former complex formula that used maximum loan-to-value ratios and required multiple calculations and closing costs as an input to the calculations.
The revised calculation is a much easier three-step process that bases the maximum mortgage amount on a fixed percentage of the property's sales price or appraised value, if less, exclusive of closing costs.
An appropriations bill last year included a provision to extend the streamlined down payment calculation to Dec. 31, 2002, but didn?t make the methodology permanent.
H.R. 3661, if enacted, would eradicate the sunset provision that triggers the need for Congressional renewal every two years. The present simplified calculation program will expire Dec. 31.
Congress has passed the downpayment simplification legislation four times, repeatedly extending its sunset date.
"It?s time to stop doing short-term reauthorizations and make permanent such a worthwhile, proven and noncontroversial program that helps low-income home buyers," Ney said. "Buying a home has proven to be one of the safest and best investments a consumer can make. We want to help more people make this investment."
The need for permanency was clear two years ago when the program came up for renewal, but a busy Congress didn?t act until 24 hours before expiration, according to James M. Murphy, chairman of the Mortgage Bankers Association of America in Washington, D.C.
"They continue to renew it, but last time around Congress took us to the brink?to within 24 hours of expiration," Murphy said. "Rather than going through this fire drill every time, we just want this program and its obvious benefits to become permanent."
Failure to make the plan permanent?or at least renew it once again--would increase the amount of down payment cash needed for more than one-third of FHA borrowers and would increase costs for lenders, who would need to revert their automated systems to the former calculation method, according to Murphy.
"Down payment simplification is a short form of reduced down payment requirements," said Murphy. "To the extent that you reduce the amount of money required for someone who is not a homeowner to buy a home, you?re making home ownership (possible) for more people."
A permanent method for increasing home ownership rates should be beautiful music to the ears of the nation?s real estate brokers, sales associates, home builders and lenders, according to Murphy.
Recent research by the mortgage bankers group found "hundreds of thousands" of current homeowners wouldn?t have made it to the closing table without the simplified program.
"By making the program permanent, we?re reaching down into underserved markets and bringing more people into ownership," said Murphy. "The benefits are clear: more people are in housing because of this program."
Murphy said down payment simplification broadens the housing markets, expands the pool of eligible home buyers and allows mortgage lenders to place more loans.
H.R. 3661 also is supported by the National Association of Mortgage Brokers, National Association of Home Builders and National Association of Realtors, according to Ney.
Ney and Murphy both said they weren?t aware of anyone who has spoken up in opposition to the legislation.
"I can?t imagine why anyone would oppose it," Murphy said.
NAR in a January statement said the simplified down payment formula has made FHA loans more affordable, more accessible and easier to understand for hundreds of thousands of home buyers.
"Realtors congratulate Congressman Ney for introducing a bill to make the simpler down payment calculation permanent," said NAR President Martin Edwards Jr. The legislation is one of NAR's major legislative priorities this year.
A spokesperson for the U.S. Department of Housing and Urban Development said the FHA won?t take a position on the legislation until it is considered by a policy committee.
Copyright: Inman News Service