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H.R. 3221 – DIVISION B - TITLE I - FHA REFORM
GENERAL - The legislation reforms the Federal Housing Administration programs to help
them keep pace with innovations in the mortgage markets and to increase loan levels in higher
cost areas.
LOAN LIMITS - Increases FHA mortgage limits to a maximum of $625,500, however the
added provisions do not impact the temporary limits set by the Economic Stimulus Act of 2008
(setting a temporary limit of $729,750 through Dec. 31, 2008).
FHA DOWNPAYMENT: Permits FHA to finance up to 100 percent of the appraised value of
the property. Requires a borrower to make a cash investment of not less than 3.5 percent of the
appraised value of the property, or such larger amount as the Secretary may determine.
Continues current statutory language allowing family members to contribute funds to the
mortgagor‘s cash investment, if repayment is secured by lien, lien is subordinate to mortgage and
total of principal and loan may not exceed 100 percent of appraised value of property.
DOWNPAYMENT ASSISTANCE RESTRICTION - Explicitly prohibits the following
sources from contributing funds to the mortgagor‘s cash investment: the seller or any other
person/entity that financially benefits from the transaction; and any third party/entity that is
reimbursed by the seller or anyone who benefits financially from the sale. The provision will
take effect on October 1, 2008.
FHA PREMIUM PRICING POLICIES - Allowable upfront premium ceiling would be
increased from 2.25 percent to 3 percent of the mortgage amount. Premium could not exceed
2.75 for first time homebuyers who complete counseling program. Allowable annual premium
ceiling remains the same at .50 percent. The bill includes a 12-month moratorium on
implementing FHA risk based premiums as published in the Federal Register on May 13, 2008
(73FH 27703). Implementation of the 12-month moratorium will be delayed until October 1,
2008.
HOME EQUITY CONVERSION MORTGAGE (HECMS) - Removes the limit on the
aggregate number of HECMs that may be originated and establishes a national HECM loan limit
equal to Freddie Mac conforming loan limit. Requires borrowers to receive counseling through
and independent third party that is not associated with or compensated by the party that is
involved in funding, originating or servicing the mortgage; or the sale of annuities, investments
or other financial or insurance products. Permits HECMs to be used for home purchase and
limits the mortgage to the Freddie Mac conforming limit. Permits HECMs on cooperatives.
Limits the origination fees to 1.5 percent of the maximum claim; Requires HUD to conduct two
studies: the first on mortgage insurance premiums on HECMs to determine the effect of limiting
costs and fees under the program; the second to determine the consumer protection and
underwriting standards to ensure that the purchaser of such products would be appropriate for the
borrowers. Finally, the bill prohibits lenders from requiring borrowers to purchase an insurance
annuity, or other product as a condition of eligibility for HECM.
AMERICAN BANKERS ASSOCIATION 12