www.lasvegasmtg.com Report: Republican Politician want FHA To Increase Down Payment
by John Le Francois
www.lasvegasmtg.com Report: Republican Politicians want FHA To Increase Down Payment from the current 3.5% to 5% and are proposing this through discussion on Wednesday Housing Financial Services Committee hearing led by Judy Biggert (R-Ill.) Last year Congress tried to increase the FHA Down Payment required, but it was removed from the bill when the President Obama threatened to veto the bill if left in.
The Republican led proposed increase to the down payment is based on the argument that FHA would not be in jeopardy of Government assistance if the borrower were required to have more skin in the game with a higher down payment. FHA has had two increases in the Upfront Mortgage Premium and the annual premium in the last year to increase the required reserves that Congress has mandated to cover mortgage defaults.
Last year Congress mandated these changes to UFMIP and MIP to secure solvency of FHA without government assistance. Borrowers with FICO score less the 580 would need to put 10% down before they could get a FHA approval.
Most of the FHA defaults were the result from the Down Payment Assistance program that was approved by Congress back in 2000 and was eliminated in 2008 when it became apparent that over 60% of these types of loans were in default in the first two years. Current FHA defaults are the results of high unemployment across the nation and would be the same regardless of the percentage of down payment required.
What is a fact is that current statistics show that Fannie Mae and Freddie Mac have an average default rate of 17% while FHA defaults are at 6.2% and VA that does not require any down payment is less then 2% in defaults.
Given VA has the lowest default rates of any mortgage loan program and does not require a down payment then logic would show that down payment is not the only determining factor for defaults.
What we do know is that the increase in down payment from 3.5% to 5% for a FHA loan would eliminate first time home buyers of at least 300,000 in the first year alone.
We know that this proposal would never come to the floor as a bill without bipartisan approval, but with banks feeling the pressure with 40% of all loans being underwritten with FHA loans, do not be surprised the banking lobby can get that bipartisan support needed to get the bill to the floor of Congress.