GOP proposes increase in FHA down payments

[alp227]

Source: Associated Press

A Republican-led proposal circulated Monday would boost the down payment requirement for mortgages backed by the Federal Housing Administration, a move some industry experts said would shut potential home buyers out of the market.

Borrowers who take out FHA-insured mortgages are permitted to put down as little as 3.5 percent, making those loans an especially attractive choice for first-time home buyers. But as defaults rose during the housing market’s worst days, FHA’s cash reserves dwindled, creating concerns that taxpayers may have to come to the agency’s rescue.

The Republican proposal would require most FHA borrowers to put down at least 5 percent. Those who support the idea say that forcing borrowers to have more equity in their homes would better protect homeowners against default and thus improve the agency’s finances. The issue will be discussed Wednesday at a House Financial Services subcommittee hearing led by Rep. Judy Biggert (R-Ill.).

The proposal has not been formally introduced in legislative form. And it’s unlikely to gain traction without bipartisan support, said Jaret Seiberg, an analyst at MF Global Inc. But if enacted, its immediate impact on the housing market would be negative, he said. Gathering the upfront cash is often the biggest hurdle for those buying their first homes.

Read more: http://www.washingtonpost.com/business/economy/gop-proposes-increase-in-fha-down-payments/2011/05/23/AF3NX69G_story.html

[madrchsod]

1. the republicans just can`t help themselves can they....

just when you would think they would wise up.....they don`t.

[DJ13]

2. At a time of the biggest shadow inventory of foreclosed homes in history?

Are they stupid?

(Thats a rhetorical question...)

[Uncle Joe]

23. It's part of their religious belief, worshiping at the altar of money requires human sacrifice. n/t

[mwooldri]

3. Where does that leave future USDA backed mortgages?

We got our mortgage backed through the USDA - and frankly it was the only way I could see how to get us a home. USDA mortgages pay for 100% of the house, no downpayment required.

Given that a lot of Republican support is in rural areas, if FHA backed mortgages are touched then something will have to give with the USDA mortgages.

[Luciferous]

17. That's also how we got our home. It's a really great program

for people living in rural areas. Our house probably wouldn't have passed an FHA inspection when we got it because it was a foreclosure and in pretty bad shape, and with regular mortgages being so hard to get now, I bet this house would still be sitting vacant if it wasn't for the rural development program. We were able to take the money we would have used on a down payment and put it toward home improvements.

[jerseyjack]

4. I am not sure this is a bad idea.

If I recall, the minimum used to be 10% for FHA and 5% for VHA. The nation survived with this. The present 3.5 percent is almost the equivalent of no money down....little skin in the game.


I am open to other opinions.

[madville]

6. No money down loans helped inflate the bubble

Easy credit isn't a good thing in some cases and this was one of them. If 10% down and conventional loans had been required many people wouldn't have been getting in way over their heads or snatching up three or four properties for the quick flip.

[Yo_Mama]

15. Given upfront charges, 3.5% is pretty much no-money down

You are not even paying all the fees.

Housing values are still dropping in many areas, and a huge number of recent FHA buyers are already underwater. Negative equity. That number is projected to grow over the next year.

[Tunkamerica]

10. I took an FHA loan. I could not have bought without it and have not made a late payment in 2 years

Maybe I should have waited for the market to continue to tank but the FTHB credit convinced me to buy when I did. I'm def. was not the only one in exactly the same situation.

[Yo_Mama]

14. You weren't

and congratulations on your success.

But it is also true that since you bought FHA defaults have spiked, causing FHA to raise insurance premiums, and also tighten eligibility/credit requirements:
http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/11-10ml.pdf

For loans with terms greater than 15 years and LTV greater than 95%, the annual insurance premium is now 1.15%. When you bought it would have been 0.50% (or 0.55% for higher LTV).

For loans with terms greater than 15 years and LTV of 95% or less, the annual insurance premium is now 1.10%.

When insurance rates rise, more people are pushed out of buying homes (in essence it is a higher interest rate). Therefore getting the most people in homes requires limiting risks on even FHA loans.

Upfront MIP is still 2.25%, so the latest round of buyers are paying for the risks taken on in the past:
http://portal.hud.gov/hudportal/documents/huddoc?id=DOC_16949.pdf

[mopinko]

19. you only have to pay the insurance until you have

20% equity.

[Yo_Mama]

21. That's correct, but that can be a very long time if your house is losing value

It's not "paid down 15% of the principal", it's actual EQUITY.

In any case, it doesn't matter, because the question is which approach to take to qualify the maximum number of people to buy homes. It is the initial and ongoing mortgage premium that will raise costs enough to lock people out of qualifying for an FHA loan. Underwriting has been tightened also.

The way FHA insurance works is that insurance premiums come in on loans and so do claims for defaulted mortgages with FHA insurance. If the total pool falls below a certain percentage, the law requires that the FHA premiums be increased. That's how we have more than doubled insurance premiums in a few years.

It's possible that insurance premiums could rise again. Even as it is, if mortgage rates were to rise to anything near historically normal levels, right now many people wouldn't be able to afford interest and insurance and so FHA insurance would be restricting the pool of borrowers very sharply. This isn't that simple; we need to preserve FHA to perform its historical function, or home values will be dropping in five years. (Unless, of course, we end up as permanently depressed as Japan.)

[mopinko]

22. insurance premiums are part of the loan unless paid

in advance. they are only figured until there is 20% of the loan paid off. they really never did do that equity thing. it is pretty impossible to get it waived that way. refi is about the only way to get it refunded.

[mopinko]

18. you are not correct. fha has been 3.5% forever.

i believe you can get a vha with no down.

[customerserviceguy]

25. Given that housing prices are still spiraling downwards

and are likely to continue to do so, this is a prudent policy.

Tax credits for first-time homebuyers did nothing to permanently help the housing market, and even spawned fraud in the process. Having the Federal government do CPR on real estate prices is like whipping a dead mule.

[madville]

5. I had to put 10% down for my FHA loan in 1997

If someone can't save up 5 or 10% for a down payment they probably won't be able to afford a mortgage, taxes, insurance, maintenance and upkeep in the long run. I think it is a reasonable requirement and helps people learn to plan and budget while saving up. Wasn't 20% the norm in the 80's?

[Tunkamerica]

11. see my reply above. I didn't have th downpayment when it counted and

haven't missed a payment, actually have been paying it down a little faster than scheduled.

[Yo_Mama]

13. Yes, you're right

The first great wave of homeownership all happened on 20% down.

One of the good effects of requiring 5% is that it would tend to limit home prices.

The worst performing FHA loans, however, were the DAPs (Downpayment Assistance Program). Having to save some money does seem to have a huge protective effect against default, probably just because it makes people get into the habit of budgeting and saving.

[LastLiberal in PalmSprings]

7. Let's do the same thing with stock traders

No more leveraged stock purchases or trading in futures, just cash on the barrel head.

[PSPS]

8. This is actually a good idea. The "(almost) no down" gimmick is a disaster.

As the amount of down payment goes down, delinquency rates go way up. It's been that was forever.

[Mopar151]

9. I would beg to disagree.

I have an FHA loan - in today's real estate reality, you get clobbered with all sorts of fees, taxes, deposits, and other costs. It's been a while, but I recall that it effectively doubled my 3% down.

[Tunkamerica]

12. yes +1

[izquierdista]

20. At its core, the idea is sound.

Having no down payment at all draws in speculators, hence all the other restrictions on FHA loans. The purpose of the agency is to HOUSE people, not make a playground for speculation. Since low-income people and first time buyers don't usually have much of a nest egg, they try to make the down as low as practical. Raising the down from 3.5% to 5% sounds like it is just being more prudent, but given all the other things Repubs want to do, I rather think this is another way for Repubs to kick poor people in the ribs while they are down.

If they REALLY cared about poor people on a budget, they would find a way to roll all the fees, taxes, deposits, and other costs into the principal of the loan, instead of doubling the down payment.

[Hubert Flottz]

16. Is there anything these assholes don't want to ruin?

I guess the more they can cause the country to decline the more they will have to blame on the democratic party and Obama?

[Mr. Jefferson]

24. Will they ever learn that making mortgages available to people who

cannot afford them is a bad idea.