FHA Chief Fights Off Higher Down Payment Requirement

October 13, 2009 No Comments »

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About two weeks after legislation was introduced to raise the minimum down payment on FHA loans to five percent, FHA boss David Stevens rejected such a move, according to the WSJ.

While speaking at the Mortgage Bankers Association conference in San Diego, Stevens told the audience that limiting the pool of eligible home buyers could dampen a fragile housing recovery.

And he warned not to jump to conclusions, noting that down payment alone doesn’t necessarily lead to default.

Of course, you could make that argument until there were no guidelines in place, which is partially why we got here.

It’s a slippery slope; how do you think we had the wide availability of 100 percent financing fueled by option arms?

Though many will argue that five percent is just as arbitrary as the current 3.5 percent minimum down payment on FHA loans, it’s a step in the right direction.

The sad fact is that the FHA has been exploited because of its relatively loose underwriting guidelines, with market share clearly surging.

FHA market share grew from a feeble 1.9 percent in the fourth quarter of 2006 to a staggering 23.7 percent in the fourth quarter of last year, unhealthy growth by any measure.

And a huge part of the reason the FHA needs appropriations to operate is because of seller funded downpayment assistance loans, which were finally outlawed.

When it comes down to it, homeowners need more skin in the game, even if it’s just another 1.5 percent.

Opponents will argue that 1.5 percent is incidental and will make no difference; if that’s the case, it shouldn’t be hard to pony it up at closing.

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