The U.S. Senate on Friday overwhemingly passed a heavily-debated bill to “modernize” FHA lending, potentially paving the way to an expansion of the Federally-insured mortgage program. The Federal Housing Administration Modernization Act of 2007, passed by a 93-1 vote, would let currently-troubled subprime borrowers refinance into loans backed by the Federal Housing Administration, although the differences between the Senate and House versions are expected to present some challenges. The bill passed by the House in September would raise the FHA loan limit to a maximum of $729,750; the Senate bill, in contrast, raises those limits to $417,000 — the same limits placed on Fannie Mae and Freddie Mac. The House bill would also allow loans with no down payment to be eligible for FHA financing, while the Senate’s version would establish a 1.5 percent down payment minimum. Sources have told HW that it is unlikely that Congress will hammer out a final version before the end of the year. Reuters reports that one large sticking point will likely be whether FHA should contribute to a new fund that would be established under the House version of the reform bill; the Senate legislation reportedly has no such provision. Nonetheless, HUD secretary Alphonso Jackson called on Congressional leaders to move quickly. “HUD’s Federal Housing Administration can provide many homeowners with a fairer, more affordable, and more sustainable alternative to costly subprime loans,” Jackson said. “I strongly urge the House and Senate to send the President a bill he can sign before the end of the year. Keeping a roof over the heads of families is the best gift Congress could give the American public this year.”

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