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Brokers increasingly support FHA program

by Peter G. Miller
May 28th, 2011

Existing home sales were down in April according to the National Association of Realtors

(NAR), but what was most interesting about the NAR announcement was a very pointed claim regarding the FHA.

“Our data shows only one out of five first-time buyers needing a mortgage could afford a 20 percent down payment, and without first-time buyers the trade-up market would stall with very negative consequences for housing and the overall economy,” said NAR president Ron Phipps. “Ironically, low down payment FHA and VA loans, which are so critical to this segment, have performed well and never needed a taxpayer bailout because those borrowers stayed well within their budgets.”

Indeed, NAR consumer survey data tells us that 56 percent of entry level buyers in the past year financed with an FHA loan.

This is the second time NAR has recently mentioned that the FHA program is not taxpayer supported. In April NAR chief economist Lawrence Yun noted that “given that FHA and VA government-backed loan programs turned a modest profit over to the U.S. Treasury last year, and have never required a taxpayer bailout, we believe low down payment loans should continue to be available for those consumers who have demonstrated financial responsibility and are willing to stay well within their budget.”

Little down

What NAR is getting at is the growing worry that loans with little down will somehow be blocked by changes from Washington.

On one hand, the Wall Street reform says that to avoid liability lenders should be making loans with 20 percent down. Such a standard would sink the real estate market if applied universally, but the standard is NOT universal. It specifically excludes the FHA program.

Alternatively, there’s an effort to make the FHA smaller, expand the private sector and thus make steeper down payments more common. As HUD Secretary Shaun Donovan explained in March congressional testimony, the government is “taking steps to bring private capital back is a process that HUD began many months ago–and I want to thank you for passing legislation in the last Congress to provide more flexibility to FHA’s mortgage insurance premium structure. With this authority, FHA announced a premium increase of 25 basis points last month.”

Follow the money

NAR members, of course, make money when properties sell. They don’t especially care if financing comes from the FHA, the private sector or bankers from the planet Florpus IX as long as it’s cheap and requires little down.

Existing-home unit sales in April 2011 were 12.9 percent below the transactions seen in April 2010. During the same period prices fell 5 percent, according to NAR.

These are the realities which will cause NAR to keep pushing the case for a strong FHA and sane FHA guidelines. In the chase for lower mortgage rates, less down and continued FHA access we’ll be hearing more from NAR, a case where the narrow goals of a special interest line up nicely with public preferences.

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