FHA Head: Don't Raise Down Payments

Now is not the time to raise the downpayment requirement on a Federal Housing Administration loan, warns FHA Commissioner David Stevens.

Stevens, testifying before a committee of the U.S. House, said his agency would probably insure 300,000 fewer home loans per year if the mandatory down payment was raised from 3.5 percent to 5 percent — a 40 percent increase.

Congress has been considering various ways to put FHA on a sounder financial footing. Besides increasing the downpayment requirement, another suggestion under discussion is raising the upfront mortgage insurance premium to 2.25 percent of the loan amount, up from 1.75 percent currently.

The National Association of REALTORS® also opposes the proposal to raise the mandatory down payment for an FHA loan. The FHA remains financially strong because it has taken steps to ensure solid underwriting standards and responsible lending practices, said Charles McMillan, NAR immediate past president, in testimony before the House Subcommittee on Housing and Community Opportunity.

“As the leading advocate for housing issues, NAR believes that one of the best ways Congress can help strengthen FHA is to quickly consider and pass legislation that would make current loan limits permanent,” McMillan said. “It’s important to note that higher balance FHA loans perform better than lower balance ones. While some argue that higher balance loans put taxpayers at risk, such loans actually strengthen the program and reduce risk to the fund.”

Explaining that FHA has played an important role in the recent housing and economic crisis by filing the gap left by private lenders, McMillan said FHA insured almost 30 percent of single-family mortgages in 2009 and more than 50 percent of first-time buyer loans. “Historically, FHA’s market share has hovered between 10 and 15 percent of all loans. And when the private market is strong enough to return, we welcome a reduced FHA market share,” he said.

McMillan said NAR was also concerned that FHA wanted to decrease seller concessions to 3 percent. Reducing seller concessions could put homeownership out of reach for many buyers, he said, because it could require buyers to pay more at closing.

4 out of 10 recent buyers used FHA loans

According to the most recent REALTORS® Confidence Index, 39% of recent buyers purchased a home with a Federal Housing Administration-insured loan. REALTORS® who took part in the November survey also reported that the number of first-time homebuyers continued to climb to 51%. The RCI results also indicated that distressed sales increased to 33% of all home sales last month, and that both investors and first-time home buyers are competing for these properties. The preponderance of distressed properties on the market has also influenced buyers' perceptions of other homes for sale. Realtors report that many buyers have pricing expectations that treat every property as if it were in foreclosure.

In addition, those surveyed expressed ongoing concerns with the impact of the Home Valuation Code of Conduct on recent appraisals. According to some survey respondents, inexperienced or out-of-area appraisers continue to rely heavily on sales prices of distressed properties, even when other comps are available.

Source: NAR

New FHA condo rules

New rules from the Federal Housing Administration could make it easier to get FHA-backed home loans for condominiums. The rules, which went into effect yesterday, were written to address current market conditions and the glut of empty condominiums left following the real estate bust.

The biggest changes include reducing the number of units in a new condominium that must be owner-occupied, eliminating a rule that banned loans to condos with "right of first-refusal" language in association bylaws, increasing the number of units that can have FHA financing, and cutting the expensive requirement of having an attorney review condominium documents before a sale.

Some of the rule changes, however, are temporary through December 2010. Others actually tighten FHA guidelines. For example, as of today, condos are eligible only if no more than 15 percent of units are more than 30 days past due on association fees. Also, while other states are now allowed to independently approve FHA mortgages, Florida is still required to have projects submit applications to the U.S. Department of Housing and Urban Development.