Prodded by the mortgage crisis, the Senate this morning overwhelmingly passed a bill to update the Federal Housing Administration, which backs certain mortgages but had been strapped by outdated loan limits that hurt high-cost areas such as Long Island.
The Senate's FHA Modernization Act would raise the current loan limit of $417,000, lower down payment required of low- and middle-income borrowers and increase penalties for fraud committed against the FHA programs.
Several of the proposed changes are aimed at stemming foreclosures and drawing in more minorities and low-income families. It would allow borrowers whose rates are due to reset to refinance into federally-insured loans. The bill would expand pre- and post-purchase mortgage counseling programs. It also would set up a five-year pilot program to test alternative credit rating systems for borrowers with little credit history at traditional credit bureaus; the new system could include rent, utility and insurance payments.
The next step is for House and Senate negotiators to reconcile differences between their bills. Then lawmakers would vote on the final version and if it passes, send it to the president for signing.
The Senate version passed 93 to 1, with six not voting. Sen. Charles Schumer (D-N.Y.) voted yes, while Democratic presidential candidate and senator Hillary Clinton (D-N.Y.) did not vote. Her office did not call back by press time.
The FHA market share of loans taken by low-income families and minorities has dropped sharply in recent years, replaced by subprime and exotic loans.
Many lenders and mortgage brokers avoided FHA-backed loans because they require more documentation, paperwork and eligibility requirements for the borrower.
But since the mortgage mess has led to lenders losing money and shutting down, FHA loans have made a huge comeback, because if the borrower defaults, the government is the safety net for the lender. FHA loans are so popular now that the federal agency has started cracking down on loan officers who make federally-backed loans without FHA approval.