[Congressional Record Volume 140, Number 66 (Tuesday, May 24, 1994)]
[Extensions of Remarks]
[Page E]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: May 24, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                  INTRODUCTION OF FHA IMPROVEMENT ACT

                                 ______


                            HON. BILL ORTON

                                of utah

                    in the house of representatives

                         Tuesday, May 24, 1994

  Mr. ORTON. Mr. Speaker, today I am introducing the FHA Improvement 
Act of 1994, legislation designed to simplify and streamline the FHA 
single-family loan program.
  The benefits of increased homeownership are substantial. It provides 
stability and an increased sense of community. For most Americans, it 
is the single most important investment they will make in their 
lifetime. Also, as individuals and families move from renting to 
owning, more rental units become available, an overlooked, but 
important source of affordable rental housing.
  Our Federal housing policies recognize the importance of 
homeownership, and generally target the area where we can have the 
greatest impact--helping individuals and families enter the housing 
market. An important example of this is the FHA program. FHA provides 
reasonable down payment requirements and affordable interest rates, 
while limiting these benefits to houses in an affordable price range.
  In recent years, however, use of FHA has declined relative to other 
mortgage instruments. An important reason for this decline is the 
increasing frustration of borrowers and realtors with the complexity 
and delays associated with using FHA. In the short run, this decline 
deprives prospective homebuyers of an important homebuying tool. In the 
long run it could threaten the economic health of the FHA Mutual 
Mortgage Insurance Fund [MMIF]. Through the process of adverse 
selection, it is possible that only the weakest homebuyers will use 
FHA.
  The FHA Improvement Act seeks to address these problems of 
complexity, without increasing risk in the mortgage insurance fund. It 
does not make changes in the somewhat controversial areas of increasing 
the maximum loan amount or lowering the insurance premium. It does make 
commonsense changes to make the system more user-friendly.
  I would like to briefly outline these changes. First, my bill 
replaces the current confusing two-part downpayment calculation with a 
simple formula, without changing the typical level of downpayment 
required. The bill also permits lenders authorized to process direct 
endorsement mortgages to issue their own mortgage insurance 
certificates--eliminating the long delays lenders frequently face. This 
does not change the loan approval process, since such lenders already 
have their own underwriting authority.
  The bill would simplify the calculation of the FHA loan floor--
minimum--replacing a county-by-county calculation with a calculation of 
average area purchase prices on a state-wide and major metropolitan 
area basis. This provision is identical to the administration's 
proposal in the housing reauthorization bill recently sent to Congress.
  The FHA Improvement Act would also eliminate the unfair and 
unnecessary prohibition against parental loans. This would eliminate 
the cumbersome and intrusive need to obtain a gift letter whenever 
parents help their children buy a house. The bill also takes into 
account recent market changes by giving FHA increased flexibility to 
originate more variable rate loan programs, such as a 5/25 loan. 
However, it ties this new loan flexibility to a determination that 
there will be no additional risk to the Mutual Mortgage Insurance Fund.
  Finally, a number of minor changes are made to outdated provisions. 
The 90-percent limitation on new construction projects not approved 
prior to construction is removed. The bill also allows FHA condominium 
project approval for those projects already approved by FNMA and 
Freddie Mac. And, HUD is directed to conduct a study of the impact of 
lowering FHA insurance premiums, with a focus of the effects on the 
MMIF.
  I believe these reforms are sensible and noncontroversial. I hope 
that we can adopt these changes during consideration of this year's 
housing reauthorization bill. Their enactment would result in a solid 
improvement of a program that has played an important role in the well-
being and economic health of our country.

                          ____________________