House Committee Talks FHA Reform

Posted by Orb Staff on March 11, 2010 No Comments
Categories : Residential Mortgage

Proposals to raise the Federal Housing Administration's (FHA) minimum required down payment across the board to 5% would result in a greater than 40% reduction in the volume of FHA-insured loans, FHA Commissioner David Stevens will tell lawmakers today.

Stevens is scheduled to testify in a House Financial Services subcommittee hearing on the FHA Reform Act of 2010 this afternoon. In prepared remarks, the FHA head acknowledged calls for the agency to increase its minimum down-payment requirements and remove the option of financing the up-front insurance premium into the loan balance. Such proposals would help increase homeowner equity, supporters say.

Currently, the FHA allows for down payments as low as 3.5%.

"We share the goal of increasing equity in home-purchase transactions but determined after extensive evaluation that such a proposal would adversely impact the housing-market recovery," Stevens will tell the subcommittee.

The agency evaluated a sample of past endorsements to identify the number of borrowers who had sufficient assets at the time of loan application to contribute an additional 1.5% of equity at closing. According to the findings, such a policy change would shut out more than 300,000 first-time home buyers, while contributing $500 million in additional budget receipts.

"In contrast, the combination of policy changes proposed by FHA in the [fiscal year] 2011 budget would contribute an additional $4.1 billion in additional receipts to FHA while having a much more moderate impact on the broader housing market," Stevens says, referring to policy changes such as the previously announced 225 basis point increase for up-front premiums (which takes effect April 5) and the proposal to raise the minimum credit score required for borrowers with low down payments.

SOURCE: House Committee on Financial Services

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