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House Subcommittee Advances H.R. 3755 Zero Downpayment Legislation

May 6, 2004

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H.R. 3755, the Zero Downpayment Act of 2004

The House Financial Services Housing Subcommittee, chaired by Rep. Bob Ney (OH),approved bipartisan legislation that would continue the Committee's efforts to increase homeownership by helping 150,000 families with downpayments on homes. By voice vote with one amendment, the Subcommittee approved H.R. 3755, the Zero Downpayment Act of 2004, which was introduced by Rep. Patrick Tiberi (OH).

H.R. 3755 would eliminate the downpayment requirement for families and individuals who buy homes with Federal Housing Administration (FHA)-insured mortgages.  The Zero Downpayment Act would create opportunities for first-time homebuyers who: do not hold enough savings for downpayments; meet FHA's underwriting requirements; and can easily afford monthly mortgage payments.  

A manager's amendment in the nature of a substitute, offered by Subcommittee Chairman Ney, adds safeguards to the legislation designed to protect homebuyers and the FHA program by requiring pre-purchase counseling, an option for foreclosure prevention counseling, and full disclosure of the incremental costs of the loan.  In addition, the amendment would require that HUD use an automated underwriting system to evaluate potential homebuyers, and establish a process to monitor lenders to ensure that they meet the participation requirements.  

HUD would be allowed to charge up to 2.25 percent up front and up to .55 percent in annual premiums.  This represents an increase in fees designed to offset the potential increased risk of no downpayment.  Lenders would be required to provide a written disclosure outlining the additional costs associated with the program.  This disclosure would allow the borrower to weigh the pros and cons of using this program versus the original FHA program or a conventional loan product.

The amendment establishes a performance trigger that would require HUD to suspend the program if the overall claim rate to the FHA fund exceeds 3.5 percent.  HUD would have to provide an annual report on the success of the program.  The manager's amendment was approved by voice vote.  

Rep. Tiberi's legislation complements the American Dream Downpayment Act, signed into law by President Bush on December 16, 2003, which gives downpayment assistance to 40,000 Americans annually.

Source: House Financial Services Committee

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