U.S. steps up response to housing crisis
The Federal Housing Administration takes a bigger role under most emerging plans.
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But all competing plans require an FHA that is up to the task of dealing with a crisis that industry experts say is uncharted territory. Bush administration officials say that they have been pushing for FHA modernization for two years and that Congress has yet to act.Skip to next paragraph
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"For more than seven months now, the president has been calling on Congress on a weekly basis to move modernization legislation in a form he could sign," says Tony Fratto, White House deputy press secretary.
In a surprise move last week, the Bush administration announced that it is taking administrative steps to expand FHA authority to refinance up to 500,000 homeowners facing foreclosure. Over the next several months, the FHA plans to implement administrative upgrades to help cope with the crisis.
Created in 1934 to stabilize a struggling mortgage market, the FHA has lost out in recent years to new subprime lenders, especially in high-cost housing markets such as California, Nevada, and Florida. The median income of all FHA home buyers in fiscal year 2007 was $50,760 and the median mortgage amount was $127,680, according to the FHA.
Congress increased FHA loan limits temporarily to $729,000 in its most recent stimulus plan, but the measure expires at the end of the year.
FHA officials want Congress to make those higher loan limits permanent.
"If they had passed FHA modernization, then we probably wouldn't have had all the problems we've had," says Brian Montgomery, commissioner of the Federal Housing Administration.
"The FHA can't improve itself without congressional approval," says David Kittle, chairman-elect of the Mortgage Bankers Association (MBA), who testified on the FHA role in the housing crisis before the Senate last week.
Just over a year ago, the FHA's market share was about 3 percent of new, single-family mortgages. But since July 2007, MBA's Kittle estimates that FHA's market share is closer to 9 percent "and climbing fast."
Sen. Christopher Dodd (D) of Connecticut, who chairs the Senate Banking, Housing and Urban Affairs Committee, is now working on a consensus for a broader housing bill to coordinate with Representative Frank's efforts in the House. The plan anticipates the FHA's guaranteeing up to $400 billion in refinanced loans.
"There is a tolerance level for what the Senate will do. I got as close as I could get," said Senator Dodd, after the Senate passed its bill on Thursday.
Sen. Richard Shelby (R) of Alabama, the top Republican on the panel, has not signed on to the new plan. He said Congress should "proceed with caution so as not to make or exacerbate the mistakes that have brought us to this point."
[Editor's note: The original version misspelled David Kittle's name.]