[Congressional Record Volume 147, Number 30 (Thursday, March 8, 2001)]
[Extensions of Remarks]
[Page E329]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                        EXPANDING HOMEOWNERSHIP

                                 ______
                                 

                          HON. JOHN J. LaFALCE

                              of new york

                    in the house of representatives

                        Thursday, March 8, 2001

  Mr. LaFALCE. Mr. Speaker, this week, I introduced two bills designed 
to strengthen the Federal Housing Administration (FHA) single family 
mortgage loan program. The two bills, H.R. 859, the ``FHA First-time 
Homebuyer Act'' and H.R. 858, the ``FHA Down Payment Simplification 
Act,'' would expand homeownership, reduced defaults on FHA loans, and 
simplify the process of securing an FHA loan.
  The first bill, the ``FHA First-time Homebuyer Act'' would pass along 
to first-time homebuyers the saving from HUD's recent cut in the FHA 
up-front loan fee into a dollar for dollar reduction in the required 
down payment. In addition, by conditioning this down payment reduction 
on a requirement of homeownership counseling, the legislation would 
reinstate the financial incentive for first-time homebuyers to undergo 
pre-purchase homeownership counseling, thus reducing default rates for 
these borrowers.
  Late last year, HUD reduced the up-front premium customarily charged 
on single family FHA loans from 2.25% to 1.50% of the loan amount. 
However, because of a quirk in the statutory formula which sets maximum 
loan limits, not a single dollar of this premium reduction accrues to 
the borrower with respect to lowering the down payment. Thus, a major 
portion of the benefit of the fee reduction benefit is deferred until 
the loan is paid off or pre-paid--which could be years or even decades 
later.
  My legislation would allow 100% of the recently announced FHA fee 
reduction to be passed along to a first-time homebuyer in the form of a 
reduced down payment. This will have the effect of reducing a 
borrower's down payment by as much as $1,755, depending on the loan 
size. Reduced down payments will make it easier for young families to 
buy a home.
  Moreover, this down payment reduction will not pose a risk to the FHA 
single family mortgage fund, since maximum loan-to-value levels, even 
with this change, will not be any higher than they were prior to last 
year's fee reduction. In practice, the legislation would have the 
effect of reducing defaults, because the lower down payment option is 
conditioned on the borrower competing a course in homeownership 
counseling.
  The second bill, the ``FHA First-time Homebuyer Act'' would make 
permanent the temporary FHA down payment simplification formula, which 
is scheduled to expire in December of next year. The FHA down payment 
simplification formula is widely considered to be a tremendous 
improvement over the confusing, two-part down payment formula that 
preceded it.
  Unfortunately, our recent practice of providing only a periodic 
extension of this improved down payment formula has resulted in 
unneeded uncertainty. Lat year, as its interim status was about to 
expire, the FHA Commissioner was forced to issue a clarification that 
loans closed before October 1, but insured after October 1 were 
eligible for the simplified treatment. Subsequently, Congress was 
forced to step in to pass a stop-gap 30-day extension, and then a 
further 26 month extension of the simplified formula, through December, 
2002. A permanent extension, supported by the major real estate 
organizations, would avoid these periodic crises.
  FHA is an effective program which helps middle class and low-income 
families buy a home, and makes a $2.4 billion annual profit for the 
government. These two bills will make it even better.

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