Brian Montgomery, Assistant Secretary for Housing, has testified before the House Financial Services Committee that modernizing the Federal Housing Administration is of paramount importance for America's "troubled subprime borrowers." The FHA has been insuring mortgage loans for low and moderate income families since the depths of the Great Depression, but these loans became unpopular with the advent of the subprime market. However, subprime mortgage loans have proven to be extremely risky for borrowers with bad credit or low income, a problem which has resulted in a recent surge of foreclosures. Home foreclosures not only force borrowers out of their place of residence, but also cost the lender an average of $40,000 and can wreck havoc on real estate investors, lenders, and communities at large. By approving of the modernization reforms, Montgomery claimed that the "FHA could potentially assist tens of thousands more borrowers who need an exit strategy from their subprime mortgages." Some of the proposed changes include:
All of these modifications are part of the Expanding American Homeownership Act which passed the House last year by an overwhelming majority. With this new structure, the FHA would not only be able to reach thousands more borrowers, but it would present "a safer, more affordable financing option than many subprime loans," according to Montgomery. By modernizing its practices and requirements, the Federal Housing Administration will be able to continue increasing homeownership among low-income Americans, minorities, the homeless and the elderly.
Though these sweeping changes to FHA policy will give the most aid to first-time home buyers and families without previous mortgages, the FHA will also continue to offer refinancing options for those who are still working on another loan. As previously noted, many low and moderate income families have found themselves unable to make monthly mortgage payments, mainly due to risky and financially unsound loans. As more and more individuals wish to refinance to a safer, more stable loan, the FHA is there to assist. The number of conventional to FHA refinances has almost doubled in the last year, and as long as borrowers meet a few simple requirements, they will qualify for a more reliable FHA refinance.