On a recent FHA post that I had, I wrote about how FHA is, bluntly speaking, up shi*s creek.
Well, earlier this morning I received an update stating that HUD asked Congress to raise FHA requirements up to 5%.
Enter FHA Taxpayer Protection Act of 2009…
Basically because of all the financial issues the Federal Housing of Administration has been having some $$$ issues, they are wanting (and rightfully so) to tighten up the guidelines, and this is a prime example of it.
The NAR (National Association of Realtors) president Vicki Cox Golder has testified to Congress and is saying to not make any sudden changes to the current down payment requirement because that would really hurt the housing market and borrowers ability to qualify for homes.
Honestly, what is another 1.5%? An extra couple grand in the STABLE housing markets and about an additional $5k+ in the high cost areas? Deal with it folks. Stop getting your “Mocha-Choco-Latta” Lattes each morning and put that money into a savings account.
I personally think that FHA should be changed as such:
- Down payment to 5% (increase it another whopping 1.5%)
- Change UFMIP to 2.5% (will increase net equity in property and assist in FHA capital reserves-see below)
- Bump up credit score minimums to 640 (with more demand, comes less supply- simple economics)
If you think about it with the current situation, the difference between the purchase price and the loan amount on an FHA loan is basically like the borrower is putting down only 1.75%. Now while the option of paying the UFMIP is available, many do NOT pay it up front.
Where does this leave the bank IF they foreclose?
1.75% net equity when trying to resale? Not that much better than 0%, and if you add attorney and Realtor fees in there, you’re in the red before you know it.
2.5% net equity isn’t much better by any means, however this would help the capital reserve amount increase by 30% and its just a small enough bump not to rock the market or borrowers.
Maybe I’m totally off, but again, just voicing my opinion.
