Lenders have new reason for optimism that Congress will extend the simplified method for calculating down payments on FHA loans.

Lawmakers trying to reconcile the House and Senate spending bills for veterans and housing affairs agreed late Tuesday to include a provision that would extend FHA down payment simplification for two years and three months, a House Banking staff member said.

Also, recognizing that the remaining appropriations bills are unlikely to be signed into law before the fiscal year ends Saturday, the House has passed a continuing resolution that, pending HUD's approval, would extend the FHA's authority to continue the program until Oct. 6. If the resolution is approved in the Senate and by the President, the Department of Housing and Urban Development would probably be authorized to continue the program through next week; the resolution merely authorizes the continuation of spending already approved for the current fiscal year.

Meanwhile, on Wednesday afternoon the Senate lifted its holds on separate legislation, sponsored by Rep. Rick Lazio, R-N.Y., that would extend for 30 days the FHA down payment simplification, a House Banking Committee staff member said. Senate leadership employees said they expected the bill to pass the Senate Wednesday evening, he said.

These developments are good news for mortgage lenders, who have been anxiously awaiting a reprieve for the popular program as its expiration date looms.

The program simplifies the formula for calculating down payments on FHA-insured home loans to make the formula more understandable for lenders and borrowers. More importantly, it saves homebuyers $2,200 on a typical $150,000 FHA loan, according to the Mortgage Bankers Association. Without the program, FHA lenders would lose up to 200,000 borrowers a year, the MBA said.

The timing of the legislative efforts is all the more important because, with the Jewish holiday of Rosh Hashanah starting Friday evening, Congress only has one day to pass an extension of the program and get it signed by President Clinton before the fiscal year ends.

Capitol sources said appropriations legislators were preparing a conference report Wednesday for next year's HUD/VA appropriations bill that would include the extension and that they planned to file the report Wednesday night.

However, Howard Glaser, head of government affairs at the MBA, said that though the Clinton administration is closely involved in negotiations over the appropriations bill, there is no guarantee that it would make it straight through to the President.

The continuing resolution, which Mr. Glaser called a "backup" measure, passed the House Tuesday and was expected by Capitol Hill sources to pass the Senate Wednesday.

A HUD spokesman said the agency was preparing a letter that it would send to mortgage lenders today, telling them that HUD plans to work with Congress to minimize any disruption caused by the program's scheduled expiration Saturday.

Legislators have taken other steps recently to assure the program's extension.

Rep. Lazio and House Banking Committee Chairman James Leach, R-Iowa, requested that an omnibus housing package, sponsored by Rep. Lazio, which includes a provision to make the down payment calculation permanent, be included in its entirety in the appropriations bill, as the outlook for the housing package's passing the Senate is bleak.

But appropriations leaders have balked at authorizing permanent legislation for the down payment calculation, because it considers its role to be the appropriation of budget dollars as opposed to the authorization of programs.

Meanwhile, the MBA and the National Association of Realtors have been lobbying at full steam to get the program extended. Mr. Glaser said that on Monday and Tuesday 3,700 members of his organization phoned legislators to express support for making the program permanent.

Despite the obstacles ahead, Mr. Glaser is optimistic about the chances of an extension passing.

"Two weeks ago this [issue] was looking like it could well be dead in the winter," he said.

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