The Federal Housing Administration (FHA) is teetering with the possibility of needing some bailout money or program requirement changes to better protect itself against increasing loan defaults.?? What???s more is the FHA is required to hold secondary reserve fund equal to 2% of all its outstanding mortgages.?? However, an independent actuarial study showed that the reserve had fallen to 0.53%.*
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Potential changes include raising the minimum down payment from its current 3.5% to 5% possibly for every borrower or possibly to just those with lower credit scores.?? Another possible change is requiring the home buyer to pay more mortgage insurance premium upfront (borrowers currently pay 1.75% of the loan amount) or not permitting the mortgage insurance premium to be financed.
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The issue at hand is FHA was originally designed to help lower-income individuals purchase a home.?? So, increasing either the down payment requirements or upfront mortgage insurance could negatively impact a potential home buyer???s home buying power and ability.?? An additional 1.5% down payment could amount to a much longer time in making a home purchase.?? For example, on a $350,000 home, the down payment could go from $12,250 to $17,500.
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FHA is also currently playing a dominant role in the lending arena.?? Just a short couple of years ago, FHA-backed loans only accounted for 2% of loans in October 2007 for purchases in Southern California.*?? However, with the credit markets tightening their ever-slimming belts, FHA backed nearly 39% of home loans in October 2009.*
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Look for the changes to the FHA lending program to be finalized sometime in January 2010.
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*Los Angeles Times ???Home Buyers will have to lay out more cash for an FHA Mortgage??? 12/3/09 by Jim Puzzanghera and Alejandro Lazo
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