FHA Mortgage Guide

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?

Check out these FHA resources for more information

This entry was posted on Thursday, July 5th, 2007 at 1:58 am and is filed under FHA. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.