FHA loans to 5% down? A 5% down payment for FHA loans?
I totally understand the issues at hand, that many agencies are now having more loans foreclose, that more loans are being lost on the books, and that lawmakers are re-looking at FHA's 3.5% downpayment to possibly raise it to 5%.
Here is the article in question written by Rich Edson of Fox Business. Proposal would boost FHA Down-Payment Requirement.
I have a few concerns, not only what some politician wants to do, but the reasoning behind it. If you read the article,
Here is a comment by Chairman Ben Bernanke.. "I think it’s undeniable that the FHA loans -- because of the low down payments and so on -- are riskier than other mortgages being made, and therefore have a greater risk of loss which would be made up by the taxpayer,” said Bernanke."
Bernanke went on to mention this, "You can make the restrictions tougher and tougher, that reduces the risk to the taxpayer -- absolutely.” “And it reduces the number of people who can get mortgages.” - BINGO.. it will reduce the number of mortgages that people can get. Then where will the real estate market be?
Here is why I am so blue and upset, with confusion in the background. We talk about ...
- the housing bubble
- homes losing value
- foreclosures & bank sales
- people that can't afford their mortgages now
- skin in the game - larger down payments
- loans that are becoming harder to close
- higher credit scores hoping to make better mortgages
And the list could go on and on.... but one major question. Could a lot of what was mentioned above, be attributed to ...
- job losses?
- Less Income?
- Higher family expenses?
- Living expenses? (health care? School?)
Overall, if you don't have a job, or lose it in the process of owning a home, or just can't save because the cost of living is increasing... wouldn't this be a larger contributor to what was mentioned above? What about USDA loans and VA loans, that are 100% financing options. Yes, their default rates are increasing. But is it because of 'no down payment'? The economy? Unemployment? Job losses?
Let's dig a little deeper. I know a loan officer, Gerry Suarez, that has a client that bought a house and used a FHA loan as their choice of financing. She had put 3.5% down, had fair credit scores of 625, and in the last year, she is under water on the house. She has been paying her mortgage because she can afford making the payments. If she sold her house in today's market, she would owe about $40,000.
My point? She has a job, is responsible, and enjoys the American Dream of owning a home. How come we never read articles about those that put 10% or 20% down, yet went into foreclosure? It happens and happens more than you would think. I have been giving spreadsheets from other large mortgage companies, showing loans that weren't performing on their books with large down payments. It's scary people. And here is a great example of the government stepping up to the plate, thinking that they know best.
One other thing that was mentioned in the article. "The bill, proposed by Congressman Scott Garrett (R-N.J.), would also eliminate FHA financing of closing costs."
First off, this is how rumors start. FHA doesn't allow you to finance the closing costs, except on a 203-k loan. (a few things can be financed per se) You have what is called seller concessions. So I have to assume that this is what the author means, that they want to take away the seller contribution, which is at 6% at this moment. To take it away completely? And to add insult to injury, have the borrower put down 5%?
My thoughts and opinions. -
Do we really think another 1.5% extra, for a down payment, is going to solve this problem? What about focusing on jobs? What about welfare checks? Sending millions of dollars to other countries, to help them, but not helping ourselves.
Small solution? What about possibly lowering the debt-to-income ratios then? I have recently approved a borrower with 3.5% down, $2,000 in reserves, with a credit score of 710, and her ratios were 38.7% and 47.3%. That means that almost 39% of her money goes to her mortgage payment, to include taxes and homeowners insurance. And that 47% goes to the mortgage payment plus all other reoccurring monthly debt. And this is before taxes !!! But what is missing from this picture?
-- living expenses, such as food, clothing, gas, electric, gas for automobiles, etc, etc
Overall, I know we have many issues that need to be fixed, the housing market is one of them. But every time I see some government official or politician try to get the house and senate to approve something, that could hurt our industry more than help, it ticks me off. What ever happened to common sense? Rhyme over reason? What do you, the American people say? The tax payers, what do you have to say????
UPDATE 10/08/09 : continued discussion on skin in the game, having equity or not. Having a large downpayment or not. Please read : I Want your Skin in this game !!! Give me your skin now...
(please read some of my solutions below in this comment - click link above)
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