New Bill Aims to Launch FHA Insured Shared Equity Pilot Program

A new piece of legislation from Rep. Gary Miller (R-CA) seeks to establish a new shared equity homeownership pilot program through the Federal Housing Administration.

Working through FHA, H.R. 6256 would allow homeowners to sell a portion of the equity in the home to an investor in order to lower their monthly mortgage payment.  In return, the family shares with the investor the value of any home price appreciation that may occur relative to the proportion of the investment.

“Over the past couple of years, our nation has witnessed one of the most severe recessions in our country’s history as a result of turmoil in the housing sector,” said Rep. Miller.  “Although some economists claim that our economy has recovered, millions of Americans remain unemployed and face the threat of losing their home.”

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Any investment that goes toward principle may not be used for downpayment or closing costs, as the homebuyer will have to comply with all of FHA requirements according to a statement from Rep. Miller.  The investor must be completely independent and the mortgagor must retain at least a 60 percent equity share in the home and all rights associated with homeownership.  If a loss is incurred on the sale of the home, the investor likewise shares in the loss in proportion to the initial investment.

“At no cost to the taxpayer, my proposal contains a potential two-fold benefit,” added Rep. Gary Miller.  “Decreasing the Loan-to-Value rates will result in lower monthly mortgage payments, thereby reducing the risk of homeownership.  By mitigating the risk for homeowners, this will also decrease FHA’s exposure to volatility in the housing market.  As countless families have been forced to foreclose on their homes, it’s time that we come up with a new, creative approach to address this ongoing problem, and I believe my bill does just that.”

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  • How does this differ from ideas like Equity Key? Is it simply an age difference?

    It gets so tiring to hear by some that all Republicans down deep inside are against FHA. Here is another innovative proposal using FHA as the intermediary initiated by a Republican.

    It surely could be a great benefit for the two coasts but how important is it for the rest of the country? The real question is if it can be commercially successful. Except for the FHA piece, it can be done right now.

  • What a horrible idea. As Reverse Mortgage professionals, we still, today, have to contend with the notion that “the lender gets the house” because of shared equity arrangements that were stopped many years ago. An FHA program like this will only confuse people more and give potential Reverse Mortgage borrowers more reasons to be afraid of them.

    • Michael,

      As to potential confusion, you have a very good point although I am not so sure about the effect on younger seniors who are becoming a larger segment of those participating in HECM transactions.

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