Congress once again has been forced to approve a continuing resolution to jump-start key government housing finance programs that have run out of money not once, but twice this year.

Federal lawmakers this month also acted to keep the National Flood Insurance Program afloat at least until March 31 of next year, and finally cleared and sent to the President his highly touted "American Dream Downpayment Act."

The $3.9 billion in additional funding cleared by the House and Senate will restart the Federal Housing Administration's multi-family, home renovation, condominium and reverse mortgage insurance programs. The money is thought to be enough to keep the programs running until the Senate returns on Jan. 20 to vote on an $820 billion omnibus appropriations bill.

The House already passed the giant spending package for fiscal 2004, which includes funding for the Department of Housing and Urban Development and its FHA mortgage insurance programs.

Lawmakers had to revive the FHA's General and Specific Risk Insurance Fund programs in early October with a $3.8 billion infusion when the agency ran out of its annual commitment authority. Neither shut down impacted the FHA's single-family mortgage program, which operates its own insurance fund.

The FHA exhausted its $23 billion commitment authority for fiscal ‘03 and the extra $3.8 billion because of record activity in condo loans and reverse mortgages which enable cash-strapped seniors to dip into the equity they have in their homes without having to sell or move to another residence.

Meanwhile, after much legislative maneuvering, the House and Senate have agreed to a three-month extension of the flood insurance program. Last year lawmakers forgot to fund the program, leaving thousands of people high and dry.

Run by the Federal Emergency Management Agency, the program helps homeowners living in flood-prone areas obtain insurance at a reasonable cost. It insures about 4.4 million policyholders in some 20,000 cities throughout the country.

The Senate originally had passed a 12-month extension of the NFIP. But the House insisted on a shorter time frame in hopes of forcing the Senate to consider reforming the way repetitive claims are handled. The change was contained in a House-passed bill to reauthorize the program until 2008.

At issue is that, according to FEMA, 40 percent of the $11 billion in flood insurance claims payments that have been made since the program was started in 1968 have gone to repetitive loss properties.

The House wants to test a mitigation program in which Uncle Sam would pay 90 percent of the cost to flood-proof flood-prone properties. If an owner refuses to accept mitigation remedies, his flood insurance rates would increase by 50 percent. And for each subsequent claim that exceeds $1,500, his rate would rise by another 50 percent until actuarial levels are reached.

That's a far cry from the House's original plan, which would have forced owners who suffer repeat flood damage to accept mitigation remedies or sell their properties to FEMA. If they refuse either option, the would have had to pay full boat for flood insurance.

In another last minute vote before adjourning for the holidays, Congress cleared legislation promoted by the White House that would boost housing affordability and increase rental opportunities.

The "American Dream Downpayment Act" -- signed into law by President Bush yesterday -- authorizes $200 million annually to assist low- and moderate-income home buyers with downpayment and closing costs, providing grants of roughly $5,000 to an estimated 40,000 home buyers annually.

It also contains a provision designed to increase the use of the FHA's hybrid adjustable-rate mortgages, which allow borrowers to qualify at slightly lower mortgage rates. These loans have a fixed interest rate for an initial period that is typically three, five, seven or ten years and then switch over to an adjustable rate.

Specifically, it removes a one percentage point cap on the initial interest rate increase on the five-year ARM.

The FHA is expected to issue its hybrid ARM regulations early in 2004.

In addition, the legislation will raise the FHA-loan limits on multi-family properties in high-cost markets, enabling apartment builders to use the program to finance affordable rental housing.

The measure will boost limits for FHA-insured multi-family loans in high-cost areas to 140 percent above the program's base limit. The current limit is 110 percent. For special projects in high-cost areas, the HUD secretary will have the discretion to raise the maximum loan limit to 170 percent above the base.

And finally, Congress also cleared legislation to lower funding fees for reservists applying for Department of Veterans Affairs guaranteed loans. However, lawmakers also raised the fee for active-duty military personnel and veterans.

The bill lowers the current 2.75 percent funding fee to 2.4 percent for reservists starting Jan. 1. At the same time, though, the funding fee for active-duty personnel and veterans goes from 2 percent to 2.2 percent. The fee will be adjusted back to 2.15% on Oct. 1.

The bill also reinstates the VA vendee loan program, which was shut down under pressure from the Office of Management and Budget earlier this year. The vendee loan program allows the department to finance sales of foreclosed properties to non-veterans.

Published: December 17, 2003

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