By In May I sent a newsletter predicting that the government would drop the levels at which the Federal Housing Administration (FHA) will insure home mortgages. This concern was spurred by a fast approaching “sunset provision” within the current law that outlines these levels. The current law is due to expire on September 30, 2011. My previous newsletter on this topic can be found here.
Senators Johnny Isakson of Georgia and Robert Menendez of New Jersey have introduced a bill which would extend the current levels at which the government insures certain mortgages through September of next year. Senate Bill 1508 proposes to extend the current law’s sunset provision for one to two years, depending on certain circumstances. This would effectively extend the current levels at which all qualified mortgages are insured during that time and it would suspend the fight to lower the levels of government backed mortgages.
The Issue
Congress is trying to reevaluate and lower these levels. Much of the country has grown politically uneasy about federally backed mortgages because this insurance tends to encourage loans that might otherwise not be made in a strictly private transaction between borrower and bank. Some contend that the present housing crises was brought on by improper lending practices, and that these practices would have been much more responsible had the federal government not insured mortgage lenders in such a broad and inclusive manner. Many in Congress argue that the solution is to drop the current levels of federally backed mortgages across the board.
However, as the deadline approaches, the fight has become uncommonly regional as Democrats and Republicans from pricier and more volatile regions have complained that the proposed drops will unfairly harm their constituents and their local housing markets. In less pricy regions, the proposed cuts will only drop the current levels by a few thousand dollars, but in more expensive regions these cuts will reduce current mortgage levels by one hundred thousand dollars or more. Northern California mortgage levels are expected to see a substantial decline in government backing. See here.
Senate Bill 1508
The result of SB 1508 would be to delay any immediate drop of insurable values for home mortgage loans. The FHA would continue to back all qualified loans at present levels. While an eventual drop still seems eminent, proponents of SB 1508 argue that more time is necessary to hatch out the right levels for each region of the country.
The National Association of Realtors generally agrees. In its Letter of Support to both Senators Isakson and Menendez, NAR warns that a hasty drop in the levels of government backed mortgages could stifle any recovery in the national housing market. The official NAR Letter of Support for SB 1508 can be found here.
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