White House Press Secretary Issues Statement About FHA Mortgage Modernization

On Friday, the White House Press secretary issued a statement concerning the bill to modernize the FHA.

"We're pleased that the U.S. Senate passed a bill today that would give FHA some of the additional flexibility it needs to provide more families with a safe, affordable mortgage financing option...Some concerns remain with both the Senate and House bills. The President believes FHA should be able to design mortgage products that can help at-risk borrowers, reward borrowers with good credit histories, and protect taxpayers with actuarially sound financing. We hope to work with Congress to resolve those concerns in a conference between the House and Senate," said the statement.

Politicians and real estate industry lobbyists assert that the current size of mortgages that the FHA is able to back is too small to attract borrowers in expensive housing markets. FHA loans are insured by the government against default, but the mortgages themselves are made by major private lenders and are usually sold to investors as mortgage-backed securities by the federal housing finance agency Ginnie Mae.

FHA mortgages are typically for first-time home buyers or low-income borrowers.

The Government National Mortgage Association (GNMA) "Ginnie Mae" does not make loans; it just guarantees the timely payment of principal and interest from approved private issuers of qualifying loans.

Unlike Freddie Mac, Fannie Mae, and Sallie Mae, Ginnie Mae is not a publicly-traded company. An investor in a GNMA security doesn't know who the underlying issuer of the mortgages is, but merely that the security is backed by the full faith and credit of the U.S government.

The idea behind the "modernization" of FHA is actually to stabilize the housing market in the wake of the credit and foreclosures debacles. The Federal Housing Department's assistance secretary has stated to the press that the bust of the housing boom "warrants" the action because the specially-insured stability that FHA brings is needed by the lending market.

FHA loans allow for up to 97% of a home's market value to be financed via the mortgage, and the 3% down payment is allowed to come from a gift. The loans carry somewhat higher but not exorbitant interest rates.

FHA borrowers are not considered sub-prime. The underwriters of the loans have the discretion to decide, based on a number of factors, whether or not a borrower qualifies as a safe enough risk to be given an FHA loan. Unlike with standard loans, FHA requirements do not include any minimum credit score.

Original Newswire Source:
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