On the heels of a substantial influx of money and a rate cut by the Federal Reserve, both the House and the Senate have passed comprehensive homeownership bills to reform the Federal Housing Administration (FHA), a federally insured loan program that provides a source of affordable fixed-rate mortgages for eligible borrowers.

The problem is the House, the Senate and the President don't agree on what those reforms should be.

Nobody can say grass grows under the government's feet. FHA reforms were proposed last year, but stalled in the Senate. But the current sub-prime loan crisis, rising foreclosures, and constipated sales is clogging the drains of fluidity. The House and Senate have applied their versions of liquid plumber, and all that remains is for President Bush to sign off on the H.R. 1852 , the "Expanding American Homeownership Act of 2007" or the "Building American Homeownership Act of 2007" as it was called in the Senate, or some compromise of both.

Both bills call for a series of revisions to the federal loan program, including the following that were passed by the House Financial Services Committee (HFSC):

• Lower Down Payments. Authorizes zero and lower down payment loans for borrowers that can afford mortgage payments, but lack the cash for a required down payment.

• Housing Counseling. Authorizes more than double the current funding level for housing counseling, to help subprime homebuyers and borrowers late on mortgage loan payments.

• Subprime borrowers. Directs FHA to provide mortgage loans to higher risk (but qualified) borrowers, without authorizing unnecessary fee hikes on such borrowers.

• Reverse Mortgages. Enhances the FHA reverse mortgage loan program to help seniors pay for health and other expenses, by removing the loan cap to avoid program shutdowns, raising loan limits, and by reducing the maximum fee lenders can charge for these loans.

• Multifamily Loans. Raises FHA multifamily loan limits, so these loans can fully fund construction costs in high cost areas, and enhances sale of foreclosed FHA rental housing loans to localities, so that affordable housing can be maintained in local communities.

• Affordable Housing Fund. Authorizes up to $300 million a year from the bill's excess profits for affordable housing, instead of returning such funds to the General Treasury.

• Higher Loan Limits. Adopts the Frank/Miller/Cardoza amendment that would raise FHA single family loan limits, which now bar loans above 95 percent of the median home price in each local area and shut FHA out of higher cost home markets.

"The amendment raises the FHA loan limit in each area to the lower of (a) 125 percent of the local area median home price or (b) 175 percent of the national GSE conforming loan limit. The amendment also retains the bill's provision for a nationwide FHA loan floor of 65 percent of the GSE conforming loan limit, and gives HUD authority to raise these loan limit amounts by up to $100,000 “if market conditions warrant," said the HFSC in a release.

That's where the Senate parted ways -- it did not agree to the same terms, refused to authorize zero down loans, and refused to raise the conforming loan limit beyond the current $417,000 for high cost areas, among other changes.

That means there's no bill to present to President Bush to sign into law yet.

"Both Houses of Congress will have to meet to finalize and enact FHA reform this year," says Pat Combs, president of the National Association of Realtors.

Unless compromises are reached quickly, and are signed into law and not vetoed by President Bush, borrowers aren't likely to get more help from the FHA this year.

Published: September 20, 2007

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