WASHINGTON, DC -- In an effort to aid struggling homeowners and address America's affordable housing crisis, the Senate Banking Committee today voted to make more consumers eligible for Federal Housing Administration (FHA)-backed loans. The FHA Modernization Act of 2007, which was approved by a vote of 20-1, raises the loan limits for FHA insurance eligibility, reduces the down payments home buyers must pay, and cracks down on unfair or deceptive lending practices that may be used in connection with FHA-insured manufactured housing loans.

"I am pleased the Banking Committee passed this bill to lower down payment requirements and help more homeowners to refinance before they lose their homes," said U.S. Senator Jack Reed (D-RI), a senior member of the committee who voted in favor of FHA reform.

Reed authored several key provisions to the bill, including an amendment to improve the U.S. Department of Housing and Urban Development's (HUD) Post-Purchase Housing Counseling Program. This initiative expands access to HUD-approved counseling programs by allowing any low- or moderate-income homeowner to be eligible for financial counseling services.

"Since we know that millions of homeowners are facing resets of their mortgages during the upcoming year, this change, combined with the new funding that the Appropriations Committee is providing for housing counseling, could immediately make a major difference for thousands of homeowners," said Reed. "This legislation will allow many more families to get the advice or assistance they need to help keep their homes."

The single-family FHA Mortgage Insurance program was created in 1934 to help spur the housing market, and increase homeownership. FHA provides mortgage insurance, it is not a direct lender. Prior to the FHA program, home buyers were required to have down payments equal to 50% of the purchase price of the home. Financing consisted of 5-year, interest-only mortgages. FHA made the low-down payment, 30 year, fixed rate, self-amortizing loan the standard product in the United States.

The Banking Committee also approved Reed's amendment to expand FHA programs for seniors and a plan to use $25 million in FHA savings every year to improve FHA's technology and program performance and provide appropriate staffing for the FHA mortgage insurance programs.

"This funding is critical to ensuring the success of the FHA modernization proposal since it will allow FHA to access cutting-edge mortgage insurance industry practices and procedures. It is one thing to give authority. It is another thing to give them the resources," concluded Reed.

Now that it has been passed out of committee, the bill moves to the floor and must be approved by the full Senate.