HUD To Congress: We Want More — And Less
February 12th, 2008
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HUD has sent a letter to Capitol Hill once again seeking FHA mortgage “reform.”
Under the stimulus program just passed by Congress, the FHA loan limit has been raised from $362,790 to as much as $729,750 — but only for this year. HUD is now seeking to increase the limit on a permanent basis to increase FHA loan limits “from $362,790 to $417,000 or 100 percent of the Federal Home Loan Mortgage Corporation (Freddie Mac) conforming loan limit in high-cost areas, and from $200,160 to $271,050 in lower-cost areas.”
In other words, the $729,750 deal is expected to die after this year — and after the November elections. In its place, HUD wants larger FHA loans, but not super colossal, elephantine mucho-jumbo mortgages.
HUD also wants risk-based insurance premiums. It has told Congress that “a key component of FHA reform is the ability of FHA to offer fair and equitable mortgage insurance premium structures that are commensurate with the risk presented by the loans insured. As a result, FHA supports neither the provisions in H.R. 1852, which would limit FHA’s ability to lower insurance premiums for borrowers with good credit histories, nor those in S. 2338, which would impose a 12-month moratorium on HUD’s proposed modification to the current FHA premium structure.”
Somehow, HUD fails to mention the GAO study which determined that risk-based premiums would result in high costs and fewer loans.
“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.”
Lastly, HUD says that it “supports the provisions in S. 2338 that lower the borrower’s cash investment requirement from 3 percent to 1.5 percent of the appraised value of the property. Although H.R. 1852 provides similar flexibility in the form of a zero-downpayment option, the House provision limits this benefit to first-time homebuyers. Such a limitation would hinder the ability of some current homeowners to refinance into an FHA-insured loan. By removing this limitation, FHA could provide existing homeowners with additional flexibility in managing mortgage debt.”
Given the state of the mortgage marketplace, does it really make sense to reduce downpayment requirements? Why is it unreasonable to expect that borrowers will put up some cash, will have some risk if the property is lost? That’s essentially HUD’s argument against third-party downpayment programs, and it’s an argument which applies no less to borrowers generally.
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February 12th, 2008 at 6:36 pm
In the current market I believe that those purchasing homes should put no less than 20 percent down. I say this because right now those who received 100 percent financing have no vested interest in the home and can simply walk away.
If you require homebuyers to put a chunk of money down they will make sure that they exhaust every last possiblity before giving up on their home loan. Also, with home values declining banks are at too much risk to loan 100 percent.
February 13th, 2008 at 1:38 pm
I can;t understand for years we have been giving buyer the chance to own thier own home with no money down. In normal markets people don’t check the monthly appraised value of thier home and sit down at the family meal and make a dicision as to weather they should pack up and leave because the homestead has lost some value. We just will not stay in a house tahts not worth more then we owe. Come on this premise that people don’t have a vested interest in staying in a home they put no down payment on is farsicle at best and smells of Americans looking for a quick and easy anwser to a much more complex problem. Even if a buyer puts nothing down on the purchase price of a home they must come up with several thousands of dolllars for things like closing costs insurance payments and moving costs to suggest that leaving a home that someone loves because they think it might of lost some sellable value in the future is just hogwash. The problem is when they use programs that allow them to buy homes they can’t afford to maintan or they somehow lose income after they own the home. The economy is half the problem not the housing slump its the recession stupid. The one no one is willing to talk about.
February 14th, 2008 at 12:01 pm
Will Texas be included in the limit increases?
February 19th, 2008 at 9:42 pm
I agree with you Dave. When someone buys a house they do have to come up with several thousands of dollars at the closing table even with no money down. Now when option arms came into place that definitely affected people at the same time it is the borrowers fault as well when they loose there home. The reason I say this is everyone wants to keep with the Jonse’s when they can’t afford to (CA) especially and the borrower looses everything. Simply put if you can’t afford a house on a regular 30 fully amoritized term don’t buy it. And if you’re a good LO you should explain to your borrower they should’nt buy a house they can’t afford on a 30yr term. I refuse to do a loan my borrower can’t afford when it’s fully amortized. Now as for the recession that is also playing a big part of the housing slump but of course we as Loan Officers who just do our job like anyone else are blamed for the reason for people being in their current situation. Its like that person who goes to the doctor and is educated on how to keep healty but does the opposite or those two people who want to get married and a pastor refuses to marry them for numerous reasons and they go to Vegas and get married and then divorce after a year or 6mos. The people have to listen when they are educated on how to buy and keep their home.
February 22nd, 2008 at 6:43 am
J.J and Dave,
I must say that you both have valid points but that they are also vague and relative to the individuals involved.
As a responsible person and aside from being a loan originator, I “ALWAYS” make sure the customers understand that the P.I.T.I. is not the only expense they will incur as a “Homeowner”. A home is like a child in the fact that there are and always will be, unexpected and planned cost. I express my philosophy that they need to set up the budget with that in mind and also set up a budget that will allow a monthly “Principal payment”. If life comes along, as it always does, they are at least in position to make the current mortgage payment as set up and feel a sense of relief by having the extra money they needed.[car, kids ect..]
If they can plan on and use this approach, this not only pays off the mortgage faster, if also is a built in safety net, increases their equity faster, thus giving them a true sense of accomplishment. “The American Dream” of home ownership.
As to whether the person made a down payment of any size is irrelevant if they do not understand the basics and as the one in a million people they could have choose to use, I feel a personal responsibility to make sure they are educated and informed. Not to scare them away, or for me to make a decision on their ability to stay when the going get tough.
February 22nd, 2008 at 2:32 pm
Shannon –
One of the problems with comment boxes is that they tend to allow for only short postings. I have no doubt that like you, JJ and Dave also counsel their clients regarding budgets and other matters.
February 28th, 2008 at 4:15 pm
People do not get a 100% loans are people who do not live in high home areas. You could up to 900k or more for just a regular 3 bedroom home in these areas.