Yikes!! Possible FHA down payment increase =(

This email was sent by a lender friend of mine. And, it was a must "POST". So, read it and if you have any questions give me a call (775) 762-8355

This bill calls for the existing 3.5% FHA minimum down payment to be increased to 5%.

Why?

In the wake of the sub-prime and alt-a mortgage meltdown and subsequent disappearance of no or low down payment loan programs, the number of FHA insured mortgages has soared over the last two years. The number of FHA related foreclosures has also increased significantly, to the point where FHA has paid out so much money reimbursing lenders for losses that they are in danger of seeing their reserves fall below the 2% level mandated by Congress.

The preservation options are to either have the taxpayers foot the bill (FHA is a government loan program) or increase down payments or upfront and monthly mortgage insurance premiums. I am actually in favor of the latter.

Scott Garrett feels that the taxpayers need to be protected so he introduced this legislation aimed at raising the amount of money or “skin” an FHA buyer is requited to sink into the FHA loan transaction. The feeling is that a) it will help replenish FHA reserves without taxation and b) reduce foreclosures because statistics prove that the more money homeowners put down, the less likely they are to throw in the towel when times get tough.

Personally, I feel it will be shot down for three main reasons:

1) The voting majority is Democrat and the sponsor is a Republican
2) Making the homeownership “barrier of entry” more difficult in a foreclosure rich market where inventory desperately needs streamlining does not seem logical
3) The more sensible solution is to increase the mortgage insurance premiums that can be financed or collected monthly rather than burdening first time homebuyer’s with having to scrape up more of a down payment

The “other” provision of this bill is to prohibit the financing of closing costs on FHA transactions. This doesn’t make much sense to me because FHA already disallows this. The only thing I can think of is maybe they are trying to prevent the practice of increasing the sales price to get credits from sellers.

More to come