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Rep. Phillips Announces Bill to Make Federal Home Loans More Affordable

Today, Rep. Dean Phillips (MN-03) announced that he has introduced legislation to make home loans from the Federal Housing Administration (FHA) more affordable by ending the requirement that borrowers pay mortgage insurance premiums for the life of their loans. Unlike the FHA, private mortgage insurers are required to cancel premiums when the outstanding balance reaches 78 percent of the original home value. Before June 3, 2013, the FHA had this same requirement, which the bill would reinstate. This would level the playing field for FHA borrowers, who are more likely to be low-income, people of color, or first-time home buyers. The bill will be marked up in the Financial Services Committee this week. The full text of the bill can be found here.

“Minnesotans who choose the FHA to achieve their dream of homeownership are unfairly punished by outdated rules,” said Phillips. “Once equity thresholds have been met, FHA borrowers should be treated the same as private borrowers. That’s why I’m proud to introduce this bill, which would help homeowners save for the future.”

As a result of this “life of loan” policy, FHA borrowers often pay far more in mortgage insurance premiums over the loan term than non-FHA borrowers. This practice disproportionately affects low- and moderate-income borrowers, first-time homebuyers and minority buyers.

The FHA’s justification for the change in its policy was that it was consistent with its efforts to strengthen the Mutual Mortgage Insurance Fund, which had dipped below the mandatory capital ratio of 2 percent in the wake of the housing crisis. But the FHA has since reached and exceeded that requirement, and recent studies show the FHA is in strong financial health and on a strong trajectory going forward.

Minnesota REALTORS, an association of more than 22,000 realtors throughout Minnesota, voiced its support for the bill.

“The Minnesota REALTORS supports Rep. Phillips’s bill, the FHA Loan Affordability Act,” said Matt Loskota, President of Minnesota REALTORS. “This bill would provide FHA borrowers with equal treatment as conventional borrowers when it comes to cancelling mortgage insurance. This is a much-needed change that will help lift the burden on FHA borrowers in Minnesota and across the country.”

John Smaby, President of the National Association of REALTORS wrote a letter to Rep. Phillips endorsing the bill.

The bill has also been endorsed by the National Association of Real Estate Brokers, the Community Home Lenders Association, the National Housing Conference, the National Community Reinvestment Coalition, the National Association of Hispanic Real Estate Professionals and the National Consumer Law Center on behalf of its low-income clients.