Nearly 8 in 10 Americans Support Bill to Provide Safe Alternative to High Cost Subprime Mortgages

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RISMEDIA, June 19, 2007-Nearly 80% of Americans support legislation that would promote and protect the dream of homeownership by providing a safer, fairer and more affordable mortgage alternative to high-cost subprime loans, according to a new survey released by Wells Fargo.

Speaking at the Wells Fargo Housing Symposium, U.S. Housing and Urban Development Secretary Alphonso Jackson said the survey demonstrates the urgent need for Congress to pass legislation that would modernize HUD’s Federal Housing Administration (FHA) and help hundreds of thousands of borrowers find an exit strategy from their exotic subprime mortgage loans that could ultimately result in foreclosure.

“Americans want financially sound options…real choices,” Jackson said during his speech highlighting the importance of National Homeownership Month. “Americans are in support of an FHA that could help even more first-time home buyers and people with moderate incomes have access to safer mortgages. This survey demonstrates the urgent need for Congress to pass legislation that modernizes the FHA to help both promote and protect homeownership.”

Jackson added that he believes the housing market is making a needed correction and will have a bright future.

“The housing market can, and will, continue to grow. After all, homeownership stands near the all time high…at historic levels. Nearly 70 percent of all American families own a home. We should view that fact with pride. But there is work to be done. If we are going to stimulate growth in the housing market we will have to wisely engineer some important changes” – including a modernized FHA, Jackson said.

When presented with a brief description of The Expanding American Homeownership Act of 2007, legislation that would modernize FHA, the Wells Fargo survey found that 77% of Americans agreed that an improved FHA would be welcome so that more first time homeowners and people with moderate incomes would have access to mortgage loans with reasonable terms.

FHA was created in 1934 during the Depression to stimulate the housing market. Over the past 73 years, FHA has helped 34 million families become homeowners. However, as the mortgage industry has changed in recent years, FHA’s products and practices have not had the ability to adapt to evolving lending practices without Congressional legislation.

Many traditional FHA borrowers, with less-than-perfect credit and little money for a down payment, have turned to high-cost, risky loan products, especially subprime loans, because FHA’s loan limits are too low and the down payment requirement is too stringent.

Borrowers who took out subprime loans in 2005 and 2006 have begun to experience increased payments. An estimated 80%of subprime loans are sound, but the other 20% may be headed for trouble. Many of these borrowers are having, or will have, difficulty affording their new higher payments.

The Wells Fargo survey found overwhelming support for the FHA reform legislation from Americans near the average age of a first time home buyer. According to the survey, 83% of Americans between the ages of 25 and 34 favor the legislation. The National Association of Realtors reported that last year 43% of first-time home buyers purchased their homes with no down payment.

Traditionally, first time home buyers have sufficient income to make the mortgage payment, but may lack sufficient funds for a down payment. By eliminating the current three percent down payment requirement for an FHA-insured loan and instead offering low down payment options, the legislation would allow FHA to help more first time borrowers reach their goal of homeownership.

“I hope Congress will listen to these Americans. With Congress’s support, we could help hundreds of thousands of people and we could do so without exposing the taxpayers to extraordinary risk. Through refinancing with FHA, tens of thousands of families with subprime difficulties could be helped,” Jackson added.

According to 2005 HMDA (Home Mortgage Disclosure Act) data, 60% of Black Americans and 53% of Hispanics are adversely affected by abusive lending practices and pay an annual percentage rate three percent higher than market rate when purchasing a home. An overwhelming 86% of Black Americans and 81% of Hispanics surveyed by Wells Fargo favored the proposed legislation.

Under President Bush’s leadership, the minority homeownership rate is at a historic high of 51%, and could grow even higher if Congress passes The Expanding American Homeownership Act of 2007. This legislation would enable many low to moderate income minority families who would otherwise might be forced into paying high interest rates from unscrupulous lenders to instead qualify for FHA-insured mortgage loans.

The Wells Fargo survey also found that nearly 8 in 10 (79%) Americans from the Northeast and 75% of Americans in the West, where real estate costs are highest, favored the FHA modernization legislation. Currently, few borrowers in New York or California can obtain an FHA-insured mortgage loan because FHA loan limits do not provide sufficient funds for the cost of most homes in these states. The Expanding American Homeownership Act of 2007, which is similar to bipartisan legislation that was passed overwhelmingly by the House last year, would raise FHA loan limits to enable more buyers to meet the price of housing.

Of families with children under 18, 81% also support the legislation, according to the Wells Fargo survey. An additional 83% of those with children under 12 back the bill, which will make it easier for the FHA to offer more borrowers low-cost mortgage loans. According to a Harvard University study, children of homeowners score 9% higher in math; score 7% higher in reading; and are 13% more likely to graduate high school.

The national survey of 1,000 adults was conducted by The Mellman Group, Incon behalf of Wells Fargo between June 8-11, 2007 and has a margin of error of plus or minus 3.1 percentage points.

For more information, visit www.hud.gov and www.espanol.hud.gov.

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