If you have been thinking about buying a Glenview home and wondering if now is the right time, act fast!
It seems that the House Financial Services Committee, led by the Republicans, has drafted legislation, among other things, to raise the FHA down-payment requirement to 5 percent and prohibit borrowers from financing their closing costs. 
On May 25, this draft legislation was discussed in a House Subcommittee. The draft legislation is called the "FHA Rural Regulatory Improvement Act of 2011". The House Financial Services Committee's Republican Chairman Spencer Bachus touted the bill as coming at an important time in history, "This hearing and legislative proposal comes at a pivotal moment, as the Committee debates the future of the mortgage finance system, and in particular, government guarantee programs that could expose taxpayers to significant losses."
What this means to you as a homebuyer is that if this passes, buying a home in the future may become more difficult and more expensive out of pocket. Not only will the 3.5 percent minimum down payment be raised to 5 percent, but you could not finance your closing costs, forcing those monies to be yet another out-of-pocket expense, and the proposed legislation would also guarantee the reduction of current "high cost" loan limits.
Currently, the maximum loan limits for Fannie Mae, Freddie Mac, and FHA are $417,000 with a temporary limit of up to $729,750 for one-unit properties in areas that carry high-cost homes. This temporary high-cost area limit is currently set to expire on September 30, 2011, and without an extension the loan limit would revert back to a maximum of $625,500 in high-cost areas.
As always, there are two sides to every debate. Some industry advocates say this proposal is a step in the wrong direction. Michael Berman, Chairman of the Mortgage Bankers Association, explained that down-payments are not the best indicator of payment default. Berman said, "Recently, policymakers have focused on required minimum down-payments as a measure of what factors are necessary to create sound lending practices. While down-payment certainly impacts default risk, other compensating factors, particularly full documentation of conservative loan products, are more influential mitigating factors."
Berman believes that instead of raising the down payment requirement, more focus should be spent on requiring stronger underwriting standards, such as full documentation and income verification, which will allow borrowers to responsibly become, and stay, homeowners.
Ron Phillips, President of the National Association of Realtors, also opposes the down-payment increase. "NAR strongly opposes increasing the down-payment for FHA. The correlation between down-payment and loan performance is significantly less important than the linkage to strong underwriting, which FHA continues to have. FHA's foreclosure rate remains less than conventional mortgages, so we don't believe changes to the down-payment would do anything but disenfranchise many creditworthy homebuyers".
On the other side of the coin, The Cato Institute, a D.C. think tank who devotes themselves to limiting government participation in free markets, believes a combination of poor credit history and low down-payment requirements have resulted in "tremendous losses" for private mortgage investors and the FHA. In its prepared testimony Cato said, "Given the relatively "safe" features of an FHA loan, we do not have to guess about loan characteristics driving the borrower into default. We know it is equity and credit history that drives losses."
The draft legislative proposal "FHA-Rural Regulatory Improvement Act of 2011" will require a full Committee vote before it is formally introduced to be voted on by the entire house.
If you are looking to buy a home, let The Marla Schneider Team show you what Glenview has to offer. Our team has been a top producer in the Coldwell Banker Real Estate Glenview office for thirteen years in succession, top listing agent, historical volume record setter, and have received Coldwell Banker's most distinguished awards.
Comments(0)