ACTIVE REAL ESTATE FORECLOSURES FOR SALE IN BIRMINGHAM AL -05/23/2011
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Draft bill would hike
FHA loan down payments to 5%, slash loan limits
Legislation will likely draw fire from
industry groups, Senate Democrats
Republicans on the House
Financial Services Committee have drafted legislation that would raise the
minimum down payment for FHA mortgages to 5 percent, cut FHA loan limits in
most markets, and move the Agriculture Department’s rural housing program to FHA’s parent agency, HUD.
Though the draft bill has
not been introduced, titled or assigned a number, it is expected to be the main
subject of a hearing Wednesday before the Subcommittee on Insurance, Housing
and Community Opportunity, chaired by Rep. Judy Biggert, R-Ill. After that, the
bill is likely to be formally introduced and sped through subcommittee and
committee votes and head for action by the full House.
By lowering maximum FHA
loan limits in large numbers of local areas — well below even the limits that
are already scheduled to kick in Oct. 1 — the bill would squeeze down FHA loan
volume across the country, cutting a resource for some home purchasers who
can’t obtain a conventional mortgage.
The FHA loan limit formula
would be revised to 125 percent of the median home sale price in the local
county under the bill, and the current $271,050 floor for loan limits
nationwide would disappear.
Though major housing, real
estate and lending groups had no comments pending the Wednesday hearing, they
are likely to oppose the sharp cuts in loan limits.
consultant Brian Chappelle, head of Potomac Partners in Washington, D.C., is
scheduled to testify at the hearing and told Inman News that the higher loan
ceilings are a bad idea.
Audits of FHA loan
performance, Chappelle said, repeatedly have shown that higher-balance
mortgages default and trigger claims against FHA’s insurance funds at lower
rates than smaller-balance loans.
“FHA is essentially an
insurance company,” he said, “and you need those (higher-balance)
loans to spread the risk,” just as private sector insurers do.
The Republican bill’s call
for a 5 percent minimum down payment on FHA loans also is likely to draw
criticism from industry groups.
The National Association of
Realtors and the National Association of Home Builders have opposed such a move
in the past, arguing that there is no statistical evidence that adding 1.5
percent onto the current 3.5 percent minimum would significantly affect default
probabilities of new FHA loans.
However, the higher down
payments, along with the bill’s prohibition of financing of closing costs,
would make home purchases more difficult for substantial numbers of consumers.
Chappelle estimates that
“40 percent of FHA borrowers would fall out” — unable to afford the
transaction — “if they go to 5 percent down.”
The bill also proposes
shifting the Agriculture Department’s rural housing program to the U.S.
Department of Housing and Urban Development.
Passage of the bill by the
full House appears to be a real possibility, as Republicans are in control on
that side of Capitol Hill.
But all bets are off in the
Senate, where Democratic support for continuing FHA’s role in the market is far
stronger, and where dramatic cuts in loan limits in places like California, New
York, Massachusetts and the East Coast’s expensive markets likely won’t fly.
Steven Roantes, REALTOR®
Keller Williams Realty
America’s Fastest Growing Real Estate Company
“Unlocking The Door To Your Real Estate
ACTIVE REAL ESTATE
FORECLOSURES FOR SALE IN
BIRMINGHAM AL – 05/23/2011