The real estate blog.

Key legislation in changing the face of the FHA loan program cleared a major hurdle today when it passed a vote in the U.S. House of Representatives.

H.R. 1852, the Expanding American Homeownership Act of 2007, passed by a vote of 348 - 72. The Senate must pass it next before President Bush can sign it into law.

A number of provisions are built into this Act. Key among them are payment affordability provisions, expanded credit qualification and higher loan limits. For a full list of the changes, click here. Section three of the Act carries the most punch:

Amends the National Housing Act to: (1) modify requirements governing the maximum principal loan obligation; (2) extend the mortgage term from 35 to 40 years; and (3) revise requirements for cash downpayment

by the mortgagor in the eligibility criteria for mortgage insurance, including mortgage insurance premiums for zero- and lower-downpayment borrowers who obtain a mortgage secured by a one- to four-family dwelling.

(Sec. 7 ) Distinguishes standard risk mortgages secured by a one- to four-family dwelling from higher-risk mortgages.

Authorizes the Secretary of Housing and Urban Development (HUD) to: (1) establish underwriting standards for higher-risk mortgages for mortgagors with a credit score equivalent to a FICO score of less than 560; (2) provide for flexible premium rate variations according to the credit risk associated with the type of mortgage product being insured; and (3) create certain payment incentives, both discretionary and mandatory.

Essentially -

4o year amortization and the requisite mortgage insurance provisions are now available to produce lower monthly payments

Allows expanded underwriting for borrowers with bad credit by allowing risk based mortgage insurance

Raises the allowable loan limits under the program

Interestingly, an amendment was approved that would continue the operation of down payment assistance programs which have wreaked havoc in parts of Denver.

As expected, the National Association of Realtors was pleased with the legislation -

“As the leading advocate for expanding homeownership opportunities, NAR has long supported FHA modernization legislation that increases loan limits, eliminates the statutory 3 percent minimum cash down payment, and gives FHA the flexibility to provide risk-based pricing. NAR also supports the continued availability of FHA loss mitigation programs,” said Combs. “We are pleased that this bill contains all of these important enhancements.”

Additionally, the legislation benefits some owner occupied home owners facing foreclosure because of adjustable rate mortgage increases -

FHA’s loss mitigation program includes mortgage modifications, allowing borrowers to change the terms of their mortgage so that they can afford to stay in their home. The program also offers “partial claim” programs in which FHA lends the borrower money to cure the loan default. This no-interest loan is not due until the property is sold or paid off.

The Senate is expected to vote on the Act later this week. I’ll keep you updated as this reform/bailout legislation proceeds. President Bush should sign the law very soon after Senate approval.