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Delay To Ease Premiums Of Low-Income FHA Borrowers

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Bloomberg News

Published: December 5, 2007

The Bush administration agreed to delay enforcing a new rule that will let the government charge higher premiums on mortgages it insures for borrowers with poor credit.

Democratic and Republican lawmakers in the Senate and House tried last month to block the rule, after auditors said those most affected would be blacks trying to finance their first home purchase. The change, which was due to go into effect Jan. 1, will instead be postponed for up to two months, Federal Housing Administration Commissioner Brian Montgomery said.

"It's good to have breathing room to let Congress work something out and let banks adjust their systems to the new rule," Montgomery said.

The rule seeks to let the FHA use more businesslike practices that would help assure the agency's long-term solvency. It also would expand eligibility for federally insured loans by allowing 120,000 borrowers who wouldn't qualify for the program under current rules to get mortgages if they paid higher premiums, he said.

Almost 400,000 people now get FHA-insured loans.

Three senators led by Sen. Elizabeth Dole, R-N.C., last month attached an amendment to a housing bill that would stop the rule from going into effect for a year. The bill, which passed the House and the Senate Banking Committee in September, has not yet come to a vote in the full Senate.

"Senator Dole still wants a one-year delay of the rule, and hopes that Congress will pass the legislation with her amendment," Dole's chief of staff, Brian Nick, said. "But a two-month delay is helpful in allowing Congress to work things out without having to worry about the rule going into effect during that time."

Currently, the FHA charges premiums at the same rate for all home buyers. Under the new rule, it could charge a risky home buyer as much as $228 a year more on a $130,000 loan, the average size of an FHA mortgage, Montgomery said. The average home buyer in the FHA program makes $55,000 a year.

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