FHA Modernization Act

In an effort to ease the credit crisis for many Americans, the Department of Housing and Urban Development today announced a far-reaching proposal to modernize the Federal Housing Administration (FHA) and make it an important financing option in today's housing market.
Assistant Secretary for Housing- Federal Housing Commissioner Brian D. Montgomery presented the FHA Modernization Act, a legislative proposal that would enable FHA to include more Americans in the pool of prospective borrowers. Many of these borrowers are currently willing to pay subprime rates because they believe they have no other option.
The FHA Modernization Act would:
1) Create a new, risk-based insurance premium structure for FHA that would match the premium amount with the credit profile of the borrower. In simple language this means that more borrowers would qualify because FHA would be able to insure more risky loans. This feature would greatly expand the borrowers options.
2) Eliminate the current statutory three percent minimum down payment, reducing a significant barrier to homeownership. FHA's existing down payment requirement does not meet the demands of today's marketplace, where most first-time homebuyers put down two percent or less. The "new" FHA would offer a variety of down payment options.
3) Increase and simplify FHA's loan limits. This change is crucial in today's housing market. In many areas of the country, the existing FHA limits are lower than the cost of new construction, eliminating FHA financing as an option for many homeowners in New York, California, and Florida. FHA has simply been priced out of the market in other areas, where FHA insured very few homes. We are currently waiting for the loan limits to arrive and will keep you informed on this site.
The legislation would also expand the availability of the Home Equity Conversion Mortgage (HECM) program for the elderly by eliminating the cap on the number of these loans that FHA can insure. In addition, a new HECM for Home Purchase product would enable the elderly to move from the family home to housing more suitable for them as they age.
In all this will make the new FHA a source of funding for many who had no options before. Please check back frequently as changes will be updated weekly.