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HUD
Offers Alternative to Subprime Loans |
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Just about everyone aspires to
own his or her own
home. Low-paying jobs, credit problems and the
difficulty of saving enough money for a down payment,
force many to take out a high-interest subprime
loan. The San Diego Union-Tribune columnist, Bridgette
Yuille, explains how the Department of Housing and
Urban Development (HUD) is proposing to offer an
alternate to high-interest subprime loans.
“HUD wants the Federal Housing Association,
or FHA, to become more modern. FHA insurance programs
focus on low-to moderate-income individuals or families
who either need financing for a new home or refinancing
for their present
mortgage.”
HUD officials say that their proposed plan will
provide safe, fair pricing for undeserved borrowers.
It will also be offered for people who think that
a subprime loan is their only option.
There are a few key points to this proposed Federal
Modernization Act (FMA).
“The act
would create a new risk-based FHA-insurance premium
structure. Risk-based pricing means financial organizations
charge different interest rates to different people
for the same loan, depending on the consumer’s
credit. Currently, the FHA uses a standard premium
for all borrowers.”
Borrowers will also be allowed flexibility with
down payment amounts. This would eliminate the current
minimum down payment of three percent.
The FMA would increase
loan limits. Loan limits in higher cost areas
would increase from 87 percent to 100 percent of
the Government-Sponsored Enterprise (GSE) loan limit.
Lower cost areas would raise from 48 percent to
65 percent, and median cost areas would increase
from 95 percent to 100 percent of the median home
price.
Manufactured housing program loan limits also would
increase. These limits would reflect the current
cost of manufactured housing.
“The
plan would remove a cap on the number of loans the
FHA can insure in the Home Equity Conversion Mortgage
program for the elderly.”
The last proposed plan for the Federal Modernization
Act is that the FHA would insure mortgages
on condominiums under its single-family product.
“Currently, a condominium is treated as if
it was purchased as a multifamily unit and must
pass burdensome requirements. Single-family coverage
is less involved.”
Some organizations are not happy about the FHA moving
toward risk-based pricing. “HUD ought to work
with FHA-reliant lenders to see how FHA lenders
can become more competitive. Making FHA more attractive
by keeping prices as low as possible and offering
low down-payment requirements is the way to go,”
said Josh Silver, vice president of research and
policy for the National Community Reinvestment Coalition.
The majority of home builders and mortgage companies
support the proposed act because it will support
the expansion of the housing market, while making
mortgages something almost anyone can attain, without
having to pay outrageous rates. |
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