[Congressional Record Volume 144, Number 80 (Thursday, June 18, 1998)]
[Senate]
[Pages S6565-S6566]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. MURKOWSKI (for himself, Mr. Inouye, Mr. Akaka, and Mr. 
        Stevens):
  S. 2188. A bill to amend section 203(b) of the National Housing Act 
relating to the calculation of downpayments; to the Committee on 
Banking, Housing, and Urban Affairs.

[[Page S6566]]

                 family home owners mortgage equity act

  Mr. MURKOWSKI. Mr. President, today I, and my fellow Senator from the 
State of Alaska, Senator Stevens, and my good friends and colleagues 
from the State of Hawaii, Senator Inouye and Senator Akaka, are 
introducing a very important measure--one that would unlock and open 
the door to many first-time home buyers.
  As we are all aware, it is often the downpayment that is the largest 
impediment to home ownership for first-time home buyers. The Federal 
Housing Administration (FHA) began a pilot program two years ago to 
help families overcome that impediment by lowering the downpayment 
necessary for an FHA home mortgage.
  Mr. President, I am pleased to say that the pilot program, which is 
located in Alaska and Hawaii, has reported great success.
  This pilot program is effective because it accomplishes two feats: 
(1) it lowers the FHA downpayment, making it more affordable; and (2) 
it makes the FHA downpayment calculation easier and more understandable 
for all parties to the transaction. The pilot program, commonly called 
the ``97 percent Loan-to-Value Program,'' requires--on average--only a 
minimum cash investment of three percent for home buyers.
  Our bill amends section 203(b) of the National Housing Act by 
changing the current multi-part formula to a single calculation 
formula. The simplified formula creates a lower, more affordable 
downpayment while simultaneously simplifying the current, cumbersome 
loan calculation formula. Our bill would extend this lower and 
simplified downpayment rate to perspective home buyers across the 
country.
  Mr. President, the pilot program is a win-win situation: affordable 
homes are made available to responsible buyers without any increase in 
mortgage default rates. Here's what mortgage lenders have reported:

       There is no indication of increase in risk. The loans we 
     have made to date have been to borrowers with excellent 
     credit records and stable employment, but not enough 
     disposable income to accumulate the cash necessary for a high 
     downpayment.--Richard E. Dolman, Manager, Seattle Mortgage, 
     Anchorage Branch.
       Is the 97% program working? The answer is a resounding YES! 
     . . . In this current day, it takes two incomes to meet basic 
     needs. To come up with a large downpayment is increasingly 
     difficult, especially for those just starting out. The 3% 
     program is a good start . . . I do no believe that lowering 
     the downpayment increased our risk. . .-- Nancy A. 
     Karriowski, Alaska Home Mortgage, Inc., Anchorage, Alaska.
       We have experienced nothing but positive benefits from the 
     FHA Pilot Program Loan Calculation in Alaska and Hawaii.--
     Roger Aldrich, President, City Mortgage, Corporation, 
     Anchorage, Alaska.
       We support the new loan calculation, as this has provided a 
     step toward the goal of homeownership for everyone . . . We 
     do not feel that there is a greater risk with the borrower 
     putting 3 percent down rather than using the calculation 
     under the standard program . . .--Lorna Gleason, Vice 
     President, National Bank of Alaska.

  Home buyers under the pilot program agree. Vicki Case of Palmer, 
Alaska is a single parent and a mortgage lender who earned too much to 
qualify for any of the low-income mortgage programs. She would have 
been unable to purchase her home had it not been for an FHA loan with 
the reduced down payment.
  In fact, but for the pilot program, approximately 70 percent of the 
FHA loan applications processed in Vicki Case's office would be 
rejected. simply because the buyer could not afford the downpayment. 
Mr. President, thanks to this pilot program, more and more deserving 
Alaskans are becoming home owners.
  Mr. President, our legislation has the support of the Mortgage 
Bankers Association of America, the National Association of Realtors, 
the National Association of Home Builders and the U.S. Department of 
Housing and Urban Development. They believe, as I do, that borrowers in 
all states should benefit from the simplification of the FHA 
downpayment calculation.
  I firmly believe that helping American families realize their dream 
of home ownership is vital to the Nation as a whole. Our bill, by 
creating a lower FHA downpayment, does much to assist families in 
owning their first home--thereby making the American dream of home 
ownership a reality.
  Mr. President, for details on how the new calculation works in 
comparison to the current calculation, I ask unanimous consent to 
submit into the Record a downpayment calculation comparison sheet. And 
I ask that my colleagues join Senator Stevens, Senator Inouye, Senator 
Akaka, and me in supporting this important legislation.
  There being no objection, the item was ordered to be printed in the 
Record, as follows:

  FHA Downpayment Comparison Sheet--the Current Mortgage Calculation 
                 Versus the Alaska/Hawaii Pilot Program

       A. The current FHA mortgage calculation requires numerous 
     steps. They are as follows:
       Step 1: Determine the acquisition cost by adding closing 
     costs to sales price [many times the closing costs must be 
     estimated; if they are and the estimate changes during 
     processing, then the calculations must be redone.]
       Step 2: Apply the loan formulation to acquisition cost: (a) 
     97% of the $25,000, (b) 95% of the amount between $25,001 and 
     $125,000, and (c) 90% of the amount in excess of $125,000.
       Step 3: Determine the maximum LTV by multiplying the 
     appraised value [minus closing costs] by 97.75%. If the 
     property is valued at $50,000 or less, then multiply by 
     98.75%.
       Step 4: To determine the maximum FHA mortgage amount, take 
     the lower amount from steps 2 and 3. The difference between 
     the mortgage amount and the acquisition cost is the 
     downpayment.
       The simplified calculation currently utilized for FHA 
     projects in Alaska and Hawaii is basic, common sense:
       The downpayment is based on a percent of home's sale price. 
     If a home is valued at $50,000 or less, the downpayment will 
     equal 98.75 percent of the value of the home, subtracted from 
     the total costs of the sale of the home (the value of the 
     home plus closing costs). For homes that are valued at 
     $50,000 to $125,000 the downpayment will equal 97.65 percent 
     of the value of the home subtracted from the total cost of 
     the sale of home. And for homes that are valued over 
     $125,000, the downpayment will be 97.15 percent of the home 
     subtracted from the total cost of the sale of the home.
       For example: If a home sells for $98,000 and its closing 
     costs are $2,000, the total acquisition cost of the home is 
     100,000. To calculate a downpayment, 97.65 percent of the 
     cost of the 98,000 home (which equals $85.697) is subtracted 
     from the total cost of the home--the sales price plus its 
     closing costs. Therefore, the downpayment would be $4,303 
     ($100,000 - 95,697).
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