FOR IMMEDIATE RELEASE: September 20, 2007
Senate Banking Committee Approves Schumer Measure to Raise FHA Loan Limits--Helps Homeowners NY Homeowners Avoid Foreclosure During Subprime Crisis
Schumer Proposal Allows Federal Government To Insure Mortgages Up to $417,000 for Single-Family Homes
Increase Helps More First-Time Buyers Find Low-Rate Mortgages—Improves Refinancing Opportunities for Homeowners Trapped in Subprime Loans
Foreclosure Filings in NYC Up 30 Percent This Month
WASHINGTON, DC—Sen. Charles E. Schumer (D-NY) announced Wednesday that a major housing bill passed by the Senate Banking Committee includes a measure he first introduced in July to allow the federal government to insure more mortgages.
Schumer’s proposal raises the limit on the size of home loans insurable by the Federal Housing Administration (FHA) up to $417,000 for a single-family home. This represents better than a 16 percent increase over the current limit, and will make it easier for would-be homeowners across the country to purchase a home at lower-interest rates. The loan-limit increase will also help prevent foreclosures by enabling FHA to step in and provide insurance for safe, affordable mortgages to homeowners trapped in unsustainable subprime loans.
“The subprime crisis has illustrated that FHA -backed loans are among the safest and most affordable out there. This bill is an important step in helping restore our housing markets and assisting more families achieve and keep the American dream of home ownership,” Schumer said.
The measure passed as part of a major FHA reform bill put forward by Senate Banking Committee Chairman Christopher Dodd. The bill now moves to the Senate floor, where it awaits a final vote.
Because they carry a government guarantee, FHA-backed mortgages are frequently the safest, most affordable home loans a family can find. But they have become less competitive in the open market in recent years as exotic, adjustable-rate home loans became popular with brokers, many of whom received higher commission fees for steering customers towards high-cost, subprime products.
FHA-insured loans also saw their market share shrink because rising housing costs have far outpaced the allowable amount of the loans that qualify for the government guarantee. The measure would thus have a tremendous impact on high-cost housing markets like Nassau and Suffolk Counties on New York’s Long Island, where the median home price is $479,800—more than double the national median of $212,300. In these areas, the FHA limit for insuring loans—currently capped at $362,790 for Nassau and Suffolk Counties—falls short of the median home price by nearly $120,000.
Currently, the limit for FHA insurable loans is set in accordance with the median home prices in given areas. However, in high cost areas, loans are currently capped at 87% of the government-sponsored enterprise (GSE) conforming loan limit that govern Fannie Mae and Freddie Mac activities. Schumer’s proposal, which passed today, would raise the cap to 100% of the GSE conforming loan limit for single-family homes in high-cost areas.
“Americans pursuring the dream of homeownership should not be penalized because they might live in one of the more expensive areas in the country,” Schumer said. “Too many people are being forced into subprime loans because the rules the currently written in a way that does not account for high median home price areas. I applaud Chairman Dodd for making this a priority and working with me on this issue.”
Schumer also said Wednesday he planned to consider an even larger increase in loan limits for single-family homes, similar to what a House-passed bill contained yesterday. Schumer pledged, too, to work to increase the loan limits for multifamily housing in high cost areas, which is critical for helping homeowners in urban areas such as New York and other large cities.