The FHA’s role in healthy housing markets has never been more critical than today. As private lenders fled the market, FHA became one of the primary sources of safe affordable mortgage financing for American families. In order to meet demand and fulfill its mission of fostering sustainable homeownership, several legislative changes are needed to fully modernize the program.
Technical corrections to HERA. FHA reforms enacted in the Housing and Economic Recovery Act last year contained technical errors that are making it difficult for HUD to implement. These include:
- Condominiums – HERA still requires HUD headquarters to conduct an Environmental Review of all condominium projects. This bill will allow FHA to accept condominium approvals granted by state and local government authorities, which would complete the goal of HERA to streamline condominium purchases.
- Energy Efficient Mortgages - HERA increased the maximum mortgage limit to 20% for energy efficient products from 5% of the appraised value of the property. However, because of a technical drafting problem, the provision has not been fully implemented.
- FHA Resources. FHA’s role in the market has expanded exponentially. In order to keep up with this demand, while ensuring the high underwriting and oversight standards required for FHA are ably enforced, the program must be given sufficient resources to operate safely and effectively. These resources include the authority and funding needed to hire qualified staff and to upgrade decades-old technology systems.
- Risk Management. Given the increase in demand, there is concern about ensuring proper review and oversight of FHA lenders and loans. This legislation would allow HUD to more effectively target reviews of loan performance.
- Adequate Flow of Capital. An affordable, dependable supply of warehouse credit lines is critical to the continued availability of many mortgage loans. The legislation reiterates the importance of liquidity for FHA mortgage insurance.
- Foreclosure Prevention. Provide the HUD Secretary with the authority to implement new programs to minimize foreclosures through demonstration projects involving short sales and deeds in lieu of foreclosure.