Proposal to Increase FHA Downpayment Voted Down in Committee

by devteam April 29th, 2010 | Share

On Tuesday the HousernFinancial Services Committee approved a request by the Federal HousingrnAdministration (FHA) to raise the ceiling on annual FHA mortgage insurance premiumsrnfrom its current level of 0.55 percent. 

FHA had requested the increase as one part of a plan aimed at shoring uprnits capital reserves which have dropped below the 2 percent required byrnlaw.  The agency already raised the up-frontrnpremium charged to borrowers closing effective April 9.  If the full Congress approves the annualrnincrease, FHA will then shift some of the upfront premium to an annual premiumrnto reduce the burden on borrowers at closing.

FHA says it intends to gradually raisernthe annual premium to 1.5 percent.  

FHA revealed late last yearrnthat its current reserves are at .53 percent, but officials have said thatrntheir tightened lending requirements as well as the increase in premiums wouldrnallow them to restore the levels by collecting an additional $5.8 billion overrnthe next few years.  The CongressionalrnBudget Office has put the number at a much more conservative $1.9 billion.

While approving thernincrease, the Committee defeated a proposal sponsored by Scott Garrett (R-NJ)rnwhich would have increased the minimum down payment for FHA guaranteed loansrnfrom 3.5 percent to 5 percent.  It alsornwould have prohibited sellers from participating in the buyer's closing costsrnand prohibited the inclusion of any initial services charges such as appraisal,rninspections, and other fees in the principal amount of an FHA mortgage loan.  The FHA has already reduced the amount that arnseller can contribute to the buyer's closing costs from 6 percent of the loanrnamount to 3 percent.  Garrett has also submittedrnseparate legislation which would prohibit the buyer from rolling the upfrontrnpremium into the loan which would effectively increase the cash required of thernborrower at closing.

Had the Garrett Amendment survivedrnthe Committee vote it could have had a considerable negative effect on thernhousing market.  FHA guaranteed loansrnhave historically been a minor factor in mortgage financing, but in the last few years, asrncredit tightened, the FHA was forced to increase its funding efforts up to 25 percent of allrnmortgage loans and an even high proportion of loans to first time home buyers. READ MORE

All Content Copyright © 2003 – 2009 Brown House Media, Inc. All Rights Reserved.nReproduction in any form without permission of is prohibited.

About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

See all blogs


Leave a Comment

Leave a Reply

Latest Articles

Real Estate Investors Skip Paying Loans While Raising Billions

By John Gittelsohn August 24, 2020, 4:00 AM PDT Some of the largest real estate investors are walking away from Read More...

Late-Stage Delinquencies are Surging

Aug 21 2020, 11:59AM Like the report from Black Knight earlier today, the second quarter National Delinquency Survey from the Read More...

Published by the Federal Reserve Bank of San Francisco

It was recently published by the Federal Reserve Bank of San Francisco, which is about as official as you can Read More...