Making the current FHA loan limits permanent would ensure liquidity in the housing market and make mortgages more affordable for qualified buyers at a time when the market is showing signs of a fragile recovery, the NATIONAL ASSOCIATION OF REALTORS® testified to the House Subcommittee on Housing and Community Opportunity today.
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, greatly hindering the housing recovery process.
NAR strongly supports making FHA loan limits permanent, said Boyd Campbell, an NAR spokesperson and managing partner-associate broker of Century 21 in Lanham, Md. He urged the subcommittee to quickly consider legislation that would do that-H.R. 2483, introduced by committee members U.S. Reps. Brad Sherman (D-Calif.) and Gary Miller (R-Calif.).
FHA is more important than ever to homebuyers in the present market. In the wake of the collapsing private mortgage market, FHA has played a critical role in removing inventory from the market and stabilizing home prices, he said. Present FHA housing market share is approaching 25 percent, significantly up from 3 percent two years ago.
NAR said that FHA has performed remarkably well through the housing crisis, compared to Fannie and Freddie, because FHA has never strayed from the sound underwriting and appropriate appraisals that have traditionally backed up their loans.
The reason the FHA capital reserve ratio is expected to fall below 2 percent has nothing to do with FHA's current business activities. It is simply a reflection of falling housing values in their portfolio, NAR said. The FHA recently announced that a 2009 audit will show that even if FHA does nothing, the cap reserves are expected to rise back to the required level within a few years. FHA total reserves are not in as dire straits as some have reported, FHA said, because the cap reserve fund is not its reserve fund - FHA also has a separate cash reserve that is higher than it has ever been - and the combined assets total $30.4 billion.
FHA is taking timely steps to protect taxpayers: implementing credit policy changes to enhance risk management; hiring a chief risk officer for the first time in the agency's history; and shifting responsibility for mortgage brokers away from taxpayers to the lenders who use mortgage brokers.
Campbell also called on Congress to add to appropriations legislation the funds necessary to update outmoded technology systems at FHA, and urged the Senate to pass H.R. 3146, sponsored by U.S. Reps. John Adler (D-N.J.) and Christopher Lee (R-N.Y.), to allow FHA the flexibility to hire appropriate staff and expert consultants.
Such changes would help give consumers more affordable choices when purchasing a home, would help strengthen our communities, and would reduce inventory and stabilize home prices, Campbell said.
In addition to the above enhancements, NAR recommended that FHA make these specific changes to condominium purchases:
- Eliminate the owner-occupancy requirement, or at least amend rules so all bank-owned properties are not counted in the occupancy ratio;
- Increase or temporarily suspend the 30 percent limit on total units in a condominium project that may have an FHA mortgage;
- Reduce or eliminate the requirement that at least 50 percent of the units in the condominium be sold prior to FHA's endorsement; and
- Reconsider the elimination of the Spot Loan Approval Process, which allows certain borrowers to use FHA to purchase a condominium in a project that is not FHA approved.