Senate Moves to Ease Mortgage Woes

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The Senate bill would also lower the FHA down payment requirement from 3 percent to 1.5 percent, depending on an assortment of factors, and make it easier for FHA loans to be used to buy condos. "It is good before the Christmas season we have made a down payment on the solution to this problem," said Sen. Mel Martinez, R-Fla.

The legislation will help the FHA "be a source of salvation for those families who were tricked into unaffordable loans," said Sen. Charles Schumer, D-N.Y. The only senator to vote against the bill was Sen. Jon Kyl, R-Ariz.

Many homeowners have been looking for help from the government this year. Of the nearly 3 million subprime adjustable-rate loans surveyed by the Mortgage Bankers Association in the third quarter, a record 18.81 percent of them were past due. A record 4.72 percent of the loans entered into the foreclosure process during that period.

Modernizing the FHA "will have an immediate impact helping some distressed borrowers who are having trouble paying their current mortgages avoid foreclosure," said David G. Kittle, the association's chairman-elect.

The nonpartisan Congressional Budget Office estimated that the Senate's changes would result in an 8 percent increase in FHA loans — $4 billion annually in additional loan guarantees — over the next five years.

The agency, which has provided mortgage insurance since 1934, currently insures 3.7 million mortgages.

The FHA has been pushing Congress for years for the ability to guarantee more loans, saying the size of mortgages the government agency can back is often too small to attract borrowers in expensive areas. As a result, FHA's share of the single-family mortgage market has dropped to about 4 percent, down from 19 percent more than 10 years ago.

But most of the increase would not come from people in high-cost areas, the CBO said, but in the less expensive housing markets, where maximum mortgages would be going up from $200,160 to $271,050.

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