Change brewing on FHA loans
What's the difference between 3.5 percent down payments and 5 percent down payments? More than 300,000 home sales, the head of the Federal Housing Administration is telling Congress.
FHA-insured mortgages currently require the lesser percentage, but some leaders -- anxious to avoid another bailout -- think the agency would be on stronger footing if it upped the down payment to 5 percent. FHA Commissioner David H. Stevens responded Thursday that this would lead to plagues of locusts o'er the land.
Or, rather, the housing-market equivalent:
FHA evaluated the loan files of a large sample of past endorsements to identify the number of borrowers who had sufficient assets at time of loan application to contribute the additional 1.5 percent of equity at closing. ... Such a policy change would reduce the volume of loans endorsed by FHA by more than 40 percent, while only contributing $500 million in additional budget receipts. This translates to more than 300,000 fewer first-time homebuyers and would have significant negative impacts on the broader housing market -- potentially forestalling the recovery of the housing market and potentially leading to a double-dip in housing prices by significantly curtailing demand.
As the Associated Press notes, the agency is -- on the one hand -- under pressure from Republicans to avoid overreaching financially, but also -- on the other -- from Democrats who don't want lots of would-be homeowners unable to get mortgages.
Where do you come down on the debate? Would higher down payment requirements be a good idea or bad?
Should we be concerned that so many buyers are so stretched that 5 percent down is apparently impossible?
Change of some sort seems inevitable. FHA is itself proposing a 10 percent down payment requirement for anyone with a credit score between 500 and 579, with no loans extended to anyone with lower scores. It's also planning to up the upfront mortgage insurance premium and -- most significantly, some say -- to reduce allowable seller assistance to buyers from 6 percent to 3 percent.
FHA financing accounted for nearly four in every 10 home sales in the Baltimore metro area last month, according to Metropolitan Regional Information Systems.