The approval the House Banking Committee stamped on the proposal for a higher FHA loan ceiling during H.R. 3838s markup June 15 represented a resounding victory for both HUD and mortgage bankers. But its a discouraging defeat for thrifts and mortgage insurers, who must now focus their efforts on defeating the FHA proposals when the full House votes. The committees approval came as a relief to HUD and mortgage bankers, who lobbied heavily for the approval of the FHA provisions within the actformally Housing and Community Development Act. Along with the higher loan limit, which was adopted by voice vote, the approved legislation would raise the FHA loan limit to 85% of the conventional loan limit, or $203,150. The committee also approved amendments that would raise the base FHA loan limit to 50% of conventional mortgages, and repealed the 90% loan-to-value limitation for FHA single-family homes when insurance is not approved prior to construction. But not everything worked out for supporters of the legislation. An eleventh-hour amendment brought up by Rep. Thomas Barrett, D-Wis., was approved 27-21, and restricts the portion of the mortgage the FHA may insure in the risk-sharing arrangement to 35% of the principal obligation of the mortgage. Mortgage bankers were disappointed the amendment was adopted.The bottom line is it will limit the FHA insurance coverage for those kinds of loans, and consumers in that category will have to pay more, said Sharon Canavan, regulatory counsel with the Mortgage Bankers Association. Banks and thrifts did register a victory, however, when an amendment backed by House Banking Committee Chairman Henry Gonzalez, D- Texas, was defeated. Gonzalez, along with New York democrats Floyd Flake and Charles Schumer, and Peter Deutsch, D-Fla., had offered a plan that would have required all evaluationswhich are essentially less involved appraisalsbe performed by licensed and certified appraisers. Banks and thrifts vehemently opposed the provision and eventually won the support of lawmakers. The [American Bankers Association] just overwhelmed us on this issue, said one Flake aide. They flew in bankers from all over the country and got the support. Other adopted amendments would also: Require HUD to review a report issued by the Urban Institute, titled Performance of HUD Subsidized Loans: Does Cooperative Housing Matter?, and issue a report to Congress as to the departments findings; Require HUD to conduct a study of the pattern of lending and insurance activity of private mortgage lenders and insurers and report to Congress; Allow a home buyer to borrow from a parent an amount equal to the difference between the FHA loan amount and the total costs to purchase and close on the home, in order to meet the costs of purchasing a home insured under FHA, and to require that a parental loan, if secured by a lien against the home, be subordinate to the mortgage and the sum of the principal obligation of the mortgage; Repeal the 90% LTV limitation for FHA single-family homes when the insurance is not approved prior to construction. The amendment also repeals the authority to expend funds from the Mutual Mortgage Insurance Fund to correct defects in homes that receive FHA insurance prior to the homes funding; and Strike the requirement that a borrower must provide evidence within six months before the date of an application for an FHA- insured mortgage, the borrower must have been rejected for a conventional mortgage.
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