President Bush has signed a funding bill for the Department of Housing and Urban Development that gives life to a housing program first proposed by then candidate Bush during the 2000 campaign.

The measure also authorizes the Federal Housing Administration (FHA) to begin backing hybrid adjustable rate mortgages and increases the loan ceiling on FHA-insured multi-family mortgages.

Under the "American Dream Down Payment Assistance" program, Uncle Sam would match $3 for every $1 contributed by a bank or other private lending institution or individual towards a downpayment, closing costs or a "soft" second mortgage that need not be paid back as long as the borrower meets certain conditions.

The appropriations bill earmarks $50 million for the program, enough by Administration estimates to get 30,000 potential buyers over the hump and on their way towards home ownership. Assistance of up to $1,500 would be available to first-time buyers with incomes at or below 80 percent of the median for their areas.

In allowing the FHA to underwrite hybrid ARMs, the Mortgage Bankers Association projects an additional 40,000 families will be able to purchase homes, events that would unleash $5.1 billion into the sagging economy during the first year.

Hybrid ARMs are mortgages which have an initial interest rate that remains fixed for the first three, five, seven or ten years. After that, the loan becomes a true adjustable in which the rate can change annually. But because the initial rate is lower than that for regular 30-year fixed loans, more families will qualify.

Such loans are not new. In fact, they are the most popular adjustables on the market today. But the FHA has never been able to get in act. Now, though, in what MBA President James Murphy called a "significant step forward," it will be able to offer borrowers the same choices that have long been available in the conventional loan market.

The 25 percent increase in the multi-family loan limit, a top priority for the MBA and other housing organizations in recent years, comes at a critical time for thousands of low and moderate-income families who are struggling to find inexpensive housing. The change will allow builders to develop new projects that have become too costly for FHA backing.

FHA insurance provides backing for financing the new construction and substantial rehabilitation of apartments, but the inadequate loan limits had prevented many apartment developers from using the program, especially in high cost areas. According to HUD, only 748 FHA-insured multi-family loans were made nationally over the past four years, producing just 127,409 units.

Even worse, in at least 15 major cities where construction costs are the highest, not a single apartment unit was built or substantially rehabilitated under the FHA program last year. In more than half those places, not a single unit was produced with FHA insurance during the past four years.

It is the first time since 1992 that the maximum loan amount has been raised. During that time, construction costs have increased by about 25 percent. Higher building costs is one of the reasons that production of new affordable rental housing has slowed and the gap between supply and demand has widened.

The increase means the maximum loan amount insured by the government for a multi-family structure with two-bedroom apartments and an elevator in a high-cost market will increase from $68,375 to $85,468 per unit.

"Mortgage bankers are ready to help build housing projects that will spur the economy and provide decent, affordable housing for hard working Americans in the communities where they live," said Michael Petrie, President of P/R Mortgage and Invest Corp. in Indianapolis.

The HUD appropriations measure also includes nearly $144 million for new vouchers under the Section 8 program and $25 million for rural housing and economic development. In addition, it fully funds the renewal of all expiring Section 8 housing assistance contracts.

The bill also instructs HUD to work with the Office of Management and Budget to review the current calculation for FHA multi-family mortgage insurance premiums. HUD increased the premiums earlier this year to make up for a shortfall in credit subsidy. But housing interests have been asking agency to scale back the increase.

The National Association of Home Builders has maintained a review of the economic model used to calculate credit subsidy would show that premiums could remain at the lower level without jeopardizing the program.

For more articles by Lew Sichelman, please press here.

Published: December 3, 2001

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When Lew Sichelman first started writing about housing in 1969, he was the youngest real estate writer in the country. Now, 37 years later, he's one of the oldest -- and most decorated. He has been rated the top housing columnist in the country by the National Association of Realtors as well as by his peers in the National Association of Real Estate Editors. Indeed, NAREE has recognized his work on numerous occasions. One year - due to his advancing age, he can't recall which one - he earned top honors in the annual NAREE Journalism Contest in three out of the four major writing categories. It was the first time one writer has won so many NAREE awards in a single year. Known for his ability to make even the most difficult topics understandable, Sichelman also has been honored by the National Association of Home Builders and the Mortgage Bankers Association. He began providing in-depth coverage of and consumer-oriented information about housing and housing finance at the Washington Daily News, where he was real estate editor. He held that same position for nine more years at the Washington Star, which purchased the News in 1972. The Star, a so-called "writer's newspaper" which also had the misfortune of being an evening paper, was put out of its misery in 1981, and Sichelman, who had begun self-syndicating his column in 1978, decided to become a full-time columnist. Today, his column, "The Housing Scene," is distributed by United Media to newspapers throughout the country. He also is on the staff of National Mortgage News, an independent newspaper which is considered the bible of the mortgage business. And he writes for numerous other publications, including MarketWatch.com, where he answers readers questions once a week, Sports Illustrated (don't ask), RealtyTimes.com, BigBuilder and others. Sichelman is married, the father of five and grandfather of eleven.