FHA Changes Should be Approached With Caution: NAR

In his testimony before the House Subcommittee on Housing and Community Opportunity on Thursday,[IMAGE]

Charles McMillan, immediate past president of the ""National Association of Realtors"":http://www.realtor.org/ (NAR), said the ""Federal Housing Administration"":http://portal.hud.gov/portal/page/portal/HUD/federal_housing_administration (FHA) remains financially strong because it has taken steps to ensure solid underwriting standards and responsible lending practices.

As a result, NAR has urged congress and the administration to move cautiously before making changes to the FHA, which has served the needs of millions of American families for more than 75 years without needing a federal appropriation.

According to NAR, the best way Congress can strengthen the FHA is to quickly consider and pass legislation that would make current loan limits permanent. McMillan said it is important to note that higher balance FHA loans perform better than lower balance once. While some argue that higher balance loans put taxpayers at risk, such loans actually strengthen the program and reduce risk to the fund, he explained.

NAR strongly supports H.R. 2483, the Increasing Homeownership Opportunities Act, which would permanently increase FHA maximum mortgage amount limitations. Current FHA loan limits are as high as $729,750 in high-cost areas and are set to expire at the end of the year and revert to lower amounts. NAR says this will greatly hinder the housing recovery process, as a decrease of current limits would adversely affect 612 counties in 40 states and the District of Columbia.

McMillan said the FHA has played an important role in the recent housing and economic crisis by filling the gap left by private lenders. In 2009, FHA insured almost 30 percent of single-family mortgages and more than 40 percent of first-time buyer loans. This is notably higher that FHA's historical market share which has hovered between 10 and 15 percent of all loans. McMillan said a reduced market share will be welcomed, as soon as the private market is strong enough to return.

NAR strongly opposes H.R. 3706, the FHA Taxpayer Protection Act of 2009, which would increase FHA's downpayment requirement. Although it would increase an individual's investment in the home, it would not add a penny to FHA's reserves and would disenfranchise many FHA borrowers, McMillan explained.

In addition, NAR opposes a new FHA initiative that increased the up-front mortgage insurance premium (MIP) from 1.75 percent to 2.25 percent and reduced seller concessions from 6 percent to 3 percent. McMillan said these changes could put homeownership out of reach for many buyers because of the associated increase in closing costs. NAR supports legislation to reasonably increase the annual MIP to replace FHA capital reserves, but in turn, the association believes FHA should reduce the up-front premium due at the closing table.