Proposal to Raise FHA Loan Down Payment

Republicans on the House Financial Services
Committee have drafted a bill to raise the minimum down payment for Federal
Housing Administration-backed loans to 5 percent as well as cut FHA loan limits
in many markets. FHA-backed loans are a main source of mortgages for first-time
home buyers.

Currently, home owners who
take out FHA-backed loans are required to have a minimum down payment of 3.5
percent; the GOP bill seeks to raise that to 5 percent. The GOP says it wants to
protect home owners against default and improve FHA’s finances.

The bill has not yet been introduced but
remains in draft form. However, the draft legislation is expected to be
discussed on Wednesday by the subcommittee.

The draft legislation also calls for lowering FHA loan limits in
several areas.

As of now, the maximum
size of FHA-backed loans in expensive areas of the country is set to drop to
$625,500 from $729,750 as of Oct. 1. In less expensive areas, the limit may drop
to $271,050. The GOP draft bill wants to drop the limits even more to 125
percent of a county’s median home price, Dow Jones reports.

“While we support reforms to strengthen the program, changes
should not be made at consumers’ expense by drastically impacting the
affordability and availability of mortgage capital,” Ron Phipps, the National
Association of REALTORS®’ president, said in a statement.

Source: “House Republicans Aim to Raise Money
Down for FHA Loans,”
Dow Jones
International News (May 23, 2011)