RAISING THE DOWN PAYMENT FOR FHA INSURED LOANS TO 5% IS O.K.?????

By
Real Estate Agent with Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate 303829;0225082372

RAISING THE DOWN PAYMENT FOR FHA INSURED LOANS TO 5% IS O.K.????? 

Just wait until the folks on Capitol Hill proposing the down payment change rediscover another good source of money for income redistribution.  Since the American home owner has few, if any, protectors on Capitol Hill, sooner or later I predict that, a few of them will again attack the Home Mortgage Interest Deduction.  Each year, the Home Mortgage Interest Deduction puts about $70Billion in the hands of American home owners.  The government spenders, Congress, want that money. 

This post inspired by Jeff Belonger's thoughtful article on this subject on October 7. 

WARNING:  This is a political statement.  It's not aimed at a party.  To me they are all the cut from the same cloth.  When one political party has almost unlimited power, they always appear to develop a pecular kind of hubris involving taking tax money and spending it on their contributors' interests.  Whenever I want to find the motivation for a politician's actions, I just try to follow the money.   

SPEAKING FROM EXPERIENCE.   Jeff Belonger's article discusses the proposal by some Congresspersons to raise the FHA down payment to 5% as the solution to FHA mortgage defaults.  I hope this proposal doesn't get legs.  Of course, unlike the Congresspersons floating that balloon, I have actual experience with home buyers who financed their home purchase with an FHA loan.

Over the past 25 years, agents in my network or brokerage have assisted over 750 home buyers using the FHA loan to finance their home purchase.  During the "boom" years of 2004-2007, FHA loans were few because conventional financed Contracts of Sale received seller preference.  HA!  Those eschewed FHA loans had some irritating features that protect home buyers through conservative appraisals and property condition requirements (VA borrowers received the same treatment).  Those FHA loans were made when the down payment was about 2.75%, 3% and now 3.5%.  Many of these loans were made with the Down Payment Assistance program whereby a seller (not taxpayers) contributed up to 4% of their net proceeds to assist the buyers with their down payment.  As of January 1, 2009. Congress killed those programs, Nehemiah/Ameridream, etc.  I have over 2,000 past FHA buyer/clients in my database and have not yet received any information that a single buyer using FHA financing has defaulted. 

SYNONYM:  "Skin in the game" is another term for "squeezing blood out of turnips".

DON'T WANT POLITICAL TALK?  Folks who don't want these matters to get into political discussions, have their head in the sand. Head in Sand

IT'S ALL POLITICAL.  The entities that are making the decisions that make or break mortgage loans are politicians.  The politicians make decisions daily that determine who can buy a home and who cannot.  They determine, through their power, who can keep a home and cannot.  Find out who benefits from the reduction of FHA insured loans and you'll probably find PAC money going to politicians proposing an increase in FHA down payments. 

WAS IT POLITICAL TO GIVE $TRILLIONS TO THE BANKS AND WALL STREET GANGS THAT PROFITTED FROM THE MORTGAGE MESS?  When tax money was budgeted in the $Trillions to banks and Wall Street and the American home owner is kicked under the bus, that decision was made by politicians who have control of our tax money.

THE GOVERNMENT BUDGET IS LIKE A TAPE WORM?  IT NEVER GETS ENOUGH TO EAT.  Just wait until the politicians now in power get desperate for more money, they will be after the Home Mortgage Interest Deduction. 

DO WE WANT A NATION WITH A MAJORITY HOME OWNERSHIP?  OR, DO WE WANT A NATION WITH A MAJORITY OF TENANTS??

Raise the FHA down payment to 5% and another small percentage of prospective home buyers will remain tenants.

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Rainer
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Mick Michaud
Distinctly Texas Lifestyle Properties, LLC Office:682/498-3107 - Granbury, TX
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Lenn,

Where did that come from?  Do you always treat people this way that don't agree with you 100%? 

Since I have been singled out for non-existance, I thought I ought to respond, but not in-kind.

In no way was I insulting those in our profession.  However, since you have taken great offense at my comment, I apologize. 

My point is the legal situation cuts both ways.  And there-in lies the problem.  The government is screwing things up so badly by trying to manipulate or micro-manage every aspect of our business.  So while the current regs of 3.5% are OK, 5% is going to far?  Why have the 3.5% at all?  Why have the government dictating any of it at all?  And we, the sheep, go along with it.  Home ownership is a private right, reserved to the people under the Constitution.  The government has no business telling any of us how to transact our business as long as it is ethical to all parties involved.

Even though I am no longer in your world, I thought I would try to explain things, from "the other side".

 

Oct 08, 2009 06:57 AM #18
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Missy Caulk
Missy Caulk TEAM - Ann Arbor, MI
Savvy Realtor - Ann Arbor Real Estate

Well, let's hope this doesn't happen. It was cripple the housing recovery?

We bought our first home with FHA in 1979 and put down 3.5%. Yes, it was hard but my parents and grandmother helped and Mike and I saved.

Here is what I read this AM, if you delete the link I understand.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aOmu318hOZr4 it is about FHA in a 54 Billion dollar Short Fall and may need a bailout.

God help us.

Oct 08, 2009 08:30 AM #19
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Missy.  Thanks.  I wouldn't delete that link.  It's a good link.  In fact, it describes why FHA is good for the mortgage industry: 

"Due to solid underwriting requirements and responsible lending practices, FHA has avoided the brunt of defaults and foreclosures facing the rest of the real estate finance industry," Campbell said in the prepared testimony.

This is what I've been saying for ages.  FHA loans are documented and not the risk folks believe them to be because of the 3.5% down payment. 

Cure the unemployment problem and folks won't be in default.

Oct 08, 2009 08:49 AM #20
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Tammy Lankford,
Lane Realty Eatonton, GA Lake Sinclair, Milledgeville, 706-485-9668 - Eatonton, GA
Broker GA Lake Sinclair/Eatonton/Milledgeville

You are so right it is all political.  It's like citi bank being against cram down rates until they were given 40 BILLION reasons to be for it. 

There are not nearly the number of FHA foreclosures in my area as there were conventional loans. 

Oh and your comment to Dan made me remember this quote:

"A politician is a man who understands government. A statesman is a politician who's been dead for 15 years." -Harry S. Truman

I think the moral compass is too lost to get anything but thieves in Washington.

Oct 08, 2009 09:23 AM #21
Rainmaker
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Mike Saunders
Lanier Partners - Athens, GA

Lenn - I have benefited from no money down VA loans more than once. I have never missed a house payment. I know dozens of people with the same record (and I am not even beginning to include clients). The problem is not "no skin in the game", the problem(s) are the government trying to get people that cannot afford it to get into a home. The problem is groups like Acorn blackmailing banks and lending institutions into making bad loans. The problem is lenders accepting less than credible applications. The problem is rewarding directors for how many loans Fannie & Freddie buy, not the quality.

5% down, or no money down, will not change the default rate if due diligence is not performed, and as long as the government rewards and encourages irresponsible behaviour, by all parties involved.

Oct 08, 2009 12:17 PM #22
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Sybil Campbell
Long and Foster REALTORS® 5234 Monticello Ave Williamsburg, Virginia - Williamsburg, VA
REALTOR® ABR, SFR, SRES Williamsburg, Virginia

Lenn,  It is so hard for young families who are just starting out to buy a home.  The conservative appraisals required by FHA and VA are helpful in keeping home prices realistic.

Oct 08, 2009 04:26 PM #23
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Lenn.... first off, thanks for the mention.  I guess AR has some sort of block on certain google alerts because I never received an alert with my name on this one.

In regards to how you laid this one out, nice job.I particulary liked this statement... "

"SYNONYM:  "Skin in the game" is another term for "squeezing blood out of turnips".

I agree, that this is political, no matter whose side you are on. I don't trust most anymore, because there always seems to be an angle or something in it for the politician. But I don't want this to be about politics. The overall fact is that FHA & VA loans worked in the past. Sure, stated loans and no doc loans forced prices up. But what is going on now and has been for a few years in regards to many foreclosures is the loss of jobs. Yet the gov't seems to focus on other issues that could just flat out kill the real estate market. Alright, maybe not kill, but certainly hurt. Overall, in 17 years, I know of 3 clients of mine going into foreclosures.  2 were 2nd homes which both were done with subprime financing. But both had family and job issues that led to these foreclosures.  And my other one, a FHA loan to where the woman's son co-signed for her and he was supporting her. Well, he suddenly died at an earlier age and she foreclosed. Gee, I wonder if the gov't should do 2 independent studies of why so many go into foreclosure and not assume that it's because they have no skin in the game.

 

 

Mike Michaud - I am not going to get into it, on how Lenn responded, but I did have some anger and resentment when I first read your first comment. Hey, we all have opinions and I can live with that.  But here is what I took from your first comment. Here is what you said...

"I find your arguements suffering a bit from double standards.  What I mean is you're complaining about the government changing laws regarding home ownership and mandated lending practices in a way that would, in your opinioin, decrease your business opportunities."

Let's start off by asking this... would you agree that there is normally two sides to everything. Meaning, you either agree with one side or the other?  yes or no? 

My point.. I believe there is one side of this or the other side. So if Lenn complained about this from the other side, agreed with the 5% down, etc, etc..  then she is suffering from??  And what about the gov't in this one then?  They get their cake and are able to eat it too? My anger to your comment is simply this. Yes, we are all here to make a profit. But just because we disagree with the gov't, as in this case, that could hurt the real estate industry, which yes, could hurt us financially also, doesn't mean that we don't care.  I know Lenn cares... I have spoken to her many of times. I know I care... I have spoken at a rally in DC about the gov't shutting down the seller-funded DPA program, which would not only hurt our real estate industry, but hurt buyers and sellers.  The governments 1 major complaint?  It's driving the price of the home up, that appraisers are making the values work. Hell, my appraisers never drove up value...  Secondly, to argue this point... what about the 1st time home buyers tax credit?  That is costing us tax payers money.  And secondly, tax credit also drives up the price of the home.

If you want to argue with merit, please read this article. It actually was researched and let's know who were the ones that normally walked away. You might be shocked. Overall, your very first statement makes me cringe because you are assuming that we are attacking the gov't for the sake of profit, that it will cut me in half, that I won't be able to survive. Okay, yes, all of those things could happen. But when Lenn or myself argue something like this, it's because we believe in certain things and stand up and fight for them. Because we want to help the homeowner and feel that the gov't is stepping in when it doesn't belong, just because they can... and they don't always think before they do and here is a prime example.

WHo's most likely to walk away from a mortgage.

jeff belonger

Oct 09, 2009 03:36 AM #24
Anonymous
John Price

Lenn,

The knee jerk reaction by Realtors against raising the down payment to 5% isn't speaking well for your profession. As Michael states, this outrage, at the minimum, APPEARS that is being driven by a decrease in business opportunities for agents.

When the taxpayer is insuring these mortgages, and home prices are at risk of continuing to fall in places in California, Neveda, Arizona, and Florida where the majority of these FHA loans are being funded, isn't it responsible to ask for a higher down payment? This gives the taxpayer more protection, albeit it might decrease Realtors sale volumes.

While the FHA loans are written with strong standards, unexpected things happen in life. The borrower might lose his job, there might be a death in the family, or possibly an unexpected divorce that cause delinquency that lead to a sale. Since the TAXPAYER is insuring these loans against ANY loss... they need a cushion. Five percent down, in a declining CA/NV/FL/AZ real estate market, does NOT see like too much to ask.

It turns out that not having"SKIN IN THE GAME" is the single most important factor in foreclosures (WSJ, http://online.wsj.com/article/SB124657539489189043.html).

Let's not repeat the errors of the past.

Oct 09, 2009 07:34 AM #25
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Mike.  I agree completely. 

Sybil.  Right you are.  I have no problem with the appraisals of late.  I know how to prepare CMAs and know value when I write a contract. 

Jeff.  When the comment accuses me of only having opinions that will help me earn a commission, they are history.  That is a personal attack and not worthy of a response.  There's another one, a Mr. John Price, not even signed in, above.  I wonder if he and the other one work for nothing or donate their earnings to charity. 

Oct 09, 2009 08:52 AM #26
Anonymous
John Price

Hi Lenn,

It just a fact of life that given your experiences biases are going to creep up into anyone's analysis.

Given the fact that agents 1) deal directly with homeowners having difficulty selling their homes 2) deal directly with first time buyers that are having a hard time coming up with a down payment and 3) earn their money off commissions from home sales... it doesn't surprise me that they look upon lower down payments as beneficial.

But given the taxpayers are insuring these loans, 5% down does not seem like an unreasonable cushion given that taxpayers face the risk on the downside. I'd actually like to see it back to 20% or whatever the non-government insured mortgages demand in the market place.

As a taxpayer and renter, please understand it is disheartening to see my money subsidizing home purchases and agent commissions. At the minimum I deserve more protection given that FHA losses are now projected to be over $54 billion.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aOmu318hOZr4 

Oct 09, 2009 09:36 AM #27
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Mike Jones
SUNSTREET MORTGAGE, LLC (BK-0907366, NMLS 145171) - Tucson, AZ
Mike Jones NMLS 223495

Lenn,

The drawing is what grabbed my attention!  That's cool, and I'll bet you did it.

Mike in tucson

Oct 09, 2009 03:42 PM #28
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Debe Maxwell, CRS
www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310 - Charlotte, NC
Charlotte Homes for Sale - Charlotte Neighborhoods

Hi Lenn:  In response to Mike's 'double standard' comment--it's the fat cat politicians who are the ones practicing double standards--what IS he talking about?!  I agree wholeheartedly with you--and I love your comparison of the government to a tape worm...how TRUE is that and it's grown by LEAPS and bounds over the past year.  Is there an end in sight to this nonsense?

Debe in Charlotte

Oct 09, 2009 05:30 PM #29
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Lenn Harley
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Real Estate Broker - Virginia & Maryland

Mike J.  Of course.  It's rather crude, but it sends a message. 

Debe.  I don't know what he's talking about.  I don't see an end to it.  Every time they open their mouths, taxes go up and opportunity for Americans to own their own homes goes down. 

 

Oct 09, 2009 08:12 PM #30
Rainmaker
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Rebecca Levinson, Real Estate Marketing and Online Advertising Consultant
Real Skillz-Clear Marketing for Your Real Estate Vision - Lake Geneva, WI

Hi Lenn,

Thanks for posting this.  After reading I immediately called my mom who is half foot out half foot in the buying marketing right now for a house.

Oct 10, 2009 03:37 AM #31
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

@ John Price....  you made this statement... "But given the taxpayers are insuring these loans, 5% down does not seem like an unreasonable cushion given that taxpayers face the risk on the downside. I'd actually like to see it back to 20% or whatever the non-government insured mortgages demand in the market place."

How blind of a statement is that one. Taxpayers insuring these loans....???   Yea, now, after the gov't screws some things up. This is not the norm of the business, so I feel that comment of yours is just reflection of today's market, from the goofs and blunders of the gov't.  So you blame who that the taxpayers have to pay this?  And secondly, from that comment of yours, I have to assume it's because buyers who aren't putting money down, are the ones costing the tax payers money?  Did you read this article?

WHo's most likely to walk away from a mortgage.

I would suggest reading that and doing some research before you act just the gov't, who makes up rules and guidelines,

Overall... your whole theory of that the tax payer needs more protection from risk, blame the politicians. The gov't pushed Fannie Mae to lend more, to give more credit in 1998 and in 2002. You did talk about job loss and stuff. So in reality, with that in mind, do you really think an extra 1.5% is going to help? It could very well hurt more than help. And I do take offense to your statement to Lenn and mentioning realtors,that by doing this could hurt their profit.  Why?  Because I am a loan officer and I am not your typical loan officer. I try to make loans to help those with their American Dream. For many years, in the big boom of business, I made less than my competition that most aren't in the business any more. Because those same individuals had one thing in mind, lining their pockets as quickly as possible. It was a job to them. This is a career for me, just like it is to Lenn. So yes, I do take offense to your comment and find it funny that you to stick up for Mike's comment.  Again, please read the link that I supplied.... and if you still feel the same, then I don't know what to tell you.

One more thing to offer... FHA loans have been around snce 1934. The gov't with the help of HUD, started this to help making the home buying process more affordable. Gee, that has worked up until??? oh, now... in the last 3 years, when foreclosures starting to hit at record numbers. And yes, now FHA is up to about 8% default rate, up from 3%. There are two main issues to this and it doesn't have to do with down payment. Many companies jumped on the FHA bandwagon and DE underwriters jumped, more than doubled... many who didn't know as much, haven't been around long enough.  Many that were subprime underwriters... and many that were instructed by their owners of that company to make loans. I know a lot of this from past companies, from HUD, and specific people that have contacts within. I am tired of assumptions... that is too easy. The other issues?  Jobs... loss of jobs and loss of income. One other key note to the foreclosures... those no docs and stated loans. Yes, I have seen spreadsheets from many large lenders, that showed me what loans weren't performing well.  Many that had 10% to 20% down were a part of this.  And the other half... no doc and stated loans. I bring all of this up because it seems that you need more facts, before you assume with what you stated, or because you followed and agreed with Mike...

Overall.. I have actually seen the proof. .. and don't rely on the gov't to feed me answers that sound good.  Just as they did when they shot down the seller-funded down payment assitance programs... yet they allow the $8,000 tax credit, which is essentially doing the same thing now. Raising offers and purchase prices... = raising the value of real estate. Except one majpr problem with this..  the tax credit costs taxpayers money, the seller-funded DPA's didn't.  So, you argue about the taypayers paying for loans, because of down payment issues... what about what I just mentioned?

Jeff Belonger

Oct 10, 2009 04:45 AM #32
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Jeff.  I read that comment "tax payers paying the insurance".  Clearly made by someone who hasn't a clue.

Oct 10, 2009 09:00 AM #33
Anonymous
John Price

Lenn,

Taxpayers fund the federal government. If the federal govt is going to bailing out the FHA to the tune of $54 billion then taxpayers are de facto insurers.

Jeff,

24% of FHA loans issued in 2007 are in some stage of default. Already 20% of FHA loans issued in 2008 are in some stage of default.

http://www.nytimes.com/2009/10/09/business/09fha.html

Higher down payments would have certainly lowered these horrific numbers (notice how your article talks about more strategic defaults in negative equity areas).Taxpayers will be picking up the bill. Realtors and loan officers tied to these FHA loans are two parties that are benefiting at taxpayers expensee. Maybe not you or Lenn specifically, but too many have worked the system if that many delinquent FHA insured loans are in the pipeline.

Oct 10, 2009 04:43 PM #34
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Katerina Gasset
Get It Done For Me Virtual Services - Wellington, FL
Get It Done For Me Virtual Services

Lenn- It drives me crazy when agents say they don't want to discuss politics in a public forum when so many issues relating to their real estate business are driven by politics. The NAR is political. It all is political. All these issues need to be discusses and agents need to understand what is going on and not live their lives with their heads in the sand.

The mortgage interest credit is already being attacked. That will hurt me a lot since we pay a really high interest rate on our mortgage compared to many others. That credit helps us with our operating costs in our business, gives us a profit to work with, hire people, pay people, buy supplies, postage, keeps other people in their jobs and on and on and .......

It is not a two party system. It is a one party system now. We need to have term limits, pure and simple. Of course - who in congress would ever vote themselves out of a job!

Oct 11, 2009 12:52 PM #35
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
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Katerina.  I agree completely.  In fact, I wrote in a post recently that housing industry policy is purely political.  Dont' think for one minute that ACORN isn't a political arm of one party.  All of the home buyers they worked with are also voters. 

I discuss politics all the time.  Good grief, the jokers on Capitol Hill, politicians all, are affecting our lives and our jobs every single day in everything they do. 

IMO, watching what the politicians do is a part of our job.

Any ActiveRain member who has advertised or written about the income tax credit is writing about political action whether or not they realize it.

Oct 11, 2009 10:34 PM #36
Rainer
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Camille O'Donnell
O'Donnell Properties - Queenstown, MD

Wow! What a cornacopia of information that has been well written especially by Lenn and Jeff. Cheers to the both of you. For the last 12 years I have entrenched myself into the laws of the land and our local county politics. It is in my blood, it lives in my home, my spouse is consumed with it (we have both been elected to county offices) and for the life of me, I cannot understand how many people remain apathetic, inknowledgeable and talk/write before they grasp the issues. Opinions are great, but attacking someone's profession and their livelihood is always in bad taste. 

If one does not take the time to read a proposed change and really digest the benefits, loopholes or hypocrises-it can lead an industry down the wrong way for generations to come. I have complete respect for your knowledge and appreciate your candor to keep us informed. From my experience, the comments that make no sense or set your head on a spintail only reveals to me that the person is only shooting from the hip haphazardly and knows only half the story. A little bit of information can be more dangerous, and that's what causes a public swell-having inaccurate information, all the while that is what the opposition wants. You have to wonder are their moles here just preying on vulnerable people like sheeps in wolves clothing?? 

I am happy that people in this country are starting to become more vocal, stand up strong when information is wrong and for goodness sakes not letting their pride get in the way. Remember, the pen is mightier than the sword-learned a long time ago from my journalism professor. Keep rocking Lenn! 

Jul 16, 2010 07:59 AM #37
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