March 15, 2010
FHA Chief Warns Against Increasing Downpayments
Low downpayments make it easier for people to walk away from loans. Low downpayments were a key ingredient in all the fancy new mortgages that fueled the housing boom and then bust over the past eight years.
The government keeps intervening in the housing market to try to shore up prices and to reduce foreclosures.
The FHA will likely need another taxpayer bailout soon.
The head of the Federal Housing Administration is warning that boosting the minimum down payment borrowers must provide to qualify for home loans backed by the agency could threaten the housing market.
FHA commissioner David Stevens said at a House hearing Thursday that his agency would insure 300,000 fewer loans per year if the mandatory down payment was hiked from the current level of 3.5 percent to 5 percent. That's a 40 percent drop.
The result would a potential "double-dip in housing prices," because fewer people would qualify for loans, Stevens told lawmakers.
The FHA does not make loans, but offers insurance against their default. It has been insuring roughly 30 percent of new loans, and is the largest backer of mortgages to first-time buyers.
Filed under mortgage by Luke Ford
