HUD Proposes New FHA Modernization Act to Congress

Posted in HUD Homes, August 31st, 2006 |

These days, many citizens dream of owning their own home, but too many are unable to accomplish this goal due to low wages, credit problems and high minimum down payment costs. As a result, many turn to low initial cost loans like ARMs, which can be extremely risky. The rising national foreclosure rate indicates that many people who take out these loans cannot afford to keep up with their rising costs.

However, the Housing of Urban Development is seeking to change all that. HUD has proposed groundbreaking changes to renovate and modernize the system by which the Federal Housing Authortity (FHA) works. The FHA helps low to moderate-income individuals and families who either need financing for a new home or refinancing for their present mortgage. However, HUD feels that the Federal Modernization Act it has proposed will make the Agency more effective in meeting its goals and helping American citizens.

Some of the new changes include creating a risk-based interest fee, which matches the interest on loans provided by FHA-insured lenders to borrowers based on the borrower’s credit history, instead of the current flat fee. Other provisions include eliminating a minimum down payment percentage, and raising the maximum amounts that a loan can provide.

While some have doubts about the effectiveness of the new Act, especially the sections that involve risk-based pricing, HUD believes this will truly help make FHA a more attractive option for citizens. By keeping prices on loans low, especially the often deterring down payment prices, they think more people will seek and be able to receive loans for ownership.