FHA Reform — Who Wins — And Who Loses?
July 5th, 2007
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There’s been a lot of agitation in favor of FHA reform, basically steps such as zero-down loan programs which supporters say will make the program more competitive.
One important idea under FHA reform is to change the insurance system from the current plan — where everyone pays the same fee, 1.5 percent up front plus .5 percent monthly — to a risk-based system where borrower insurance costs will depend on credit history.
A new study by the Government Accountability Office shows that if the new insurance plan is adopted it will produce both winners and losers:
“GAO’s analysis of data on 2005 FHA home purchase borrowers shows that 43 percent would have paid the same or less under the risk-based pricing proposal than they actually paid, 37 percent would have paid more, and 20 percent (those with the highest expected claim rates) would not have qualified for FHA insurance.”
In other words, the majority of borrowers will do worse if the new “reform” plan is enacted.
If most borrowers will do worse, then the important question should be: Who benefits from FHA reform?
Tomorrow: Guess what happens to taxpayer dollars under FHA reform?
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September 3rd, 2007 at 2:37 am
[…] The solution to defaults under modernization, of course, is simply to get rid of risky borrowers — the GAO says that 20 percent of today’s borrowers would not qualify under the modernization program. […]