Housing Market May Be Threatened by Down Payment Increases
Cited: AP
A warning has been given by the head of the FHA about increasing the minimum down payment required of borrowers that actually qualify for home loans. These increased down payment requirements on loans backed by the agency could threaten the housing market.
FHA commissioner David Stevens said at a House hearing March 11 that his agency would insure 300,000 fewer loans per year if the mandatory down payment was hiked from the current level of 3.5% to 5%. That’s a 40% drop.
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The result would a potential “double-dip in housing prices,” because fewer people would qualify for loans, Stevens told lawmakers.
The FHA does not make loans, but offers insurance against their default. It has been insuring roughly 30 percent of new loans, and is the largest backer of mortgages to first-time buyers.
The agency said in January it would raise fees and tighten lending standards to shore up its strapped finances in hopes of avoiding a taxpayer bailout. The government agency, which has faced rising losses from foreclosed homes, has seen its reserves sink below the minimum level required by Congress.
The agency, however, is facing pressure on both sides. Democrats fear that hiking standards too much will cut off many borrowers — particularly minorities — from being able to buy homes. Republicans, however, are pushing for even tighter standards than the agency has proposed — such as the 5 percent down payment requirement.
“The question now is: Have we gone far enough?” said Rep Scott Garrett, R-N.J.
Under the proposed changes, many of which need to be approved by Congress, homebuyers would pay an upfront mortgage insurance premium of 2.25% of the total loan amount. That’s an increase from the current level of 1.75%. A borrower taking out a $200,000 mortgage would pay a $4,500 fee, for example, rather than the current fee of $3,500.
A credit score of above 580 score may not have any problems, but below a credit score of 580 they will be required to put at least a 10% down payment. This means that the credit score requirements also will be hiked. Many FHA lenders already require a higher score, but there had been no standard requirement across the program.
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My Take: Are these guys crazy? They have people scrambling around trying to get a house for the first time and they want to restrict them. It seems it people are going to have to talk to a contracts attorney just to be able to understand the paperwork involved in buying a house.
Maybe real estate agent should actually be real estate lawyer. That would definitely solve all the confusing problems. I know back east they have some beautiful Grandview real estate that is for sale and people would love to have it if they could afford it. If they start messing with down payment requirements, they definitely will not be able to order it or even the Palisades real estate that is available.
If they do change the down payment requirements, it means it more people will be going to property management to rent a house instead of buying. Of course,
those that can afford to purchase will be putting up their homes for rent. At least somebody will make money off the situation.
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