Inman News: Don’t Bet on an FHA Bailout

Changes to the Federal Housing Administration’s (FHA) negative $16 billion mortgage portfolio will not affect most borrowers, according to Inman News. Following the results of the independent audit, FHA remains firm in several withstanding policies that will continue to encourage homeownership.

Despite criticism, FHA refused to raise minimum down payments from 3.5% to 5%. There will also be no risk-based pricing on premiums as FHA will continue with its “one-price-for-all system.” Thirdly, underwriting will continue to be generous on items such as debt-to-income ratios. 

Inman News reports:

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None of this is changing because, in the words of Bob Ryan, a senior advisor to HUD Secretary Shaun Donovan, “we don’t want to overreact” to an audit report that may have exaggerated the gravity of the agency’s situation.

The audit report used house price projections that did not reflect important gains in recent months, for example, and did not take full account of revenues being generated by the agency’s high-performing, low-loss recent books of insurance business. 

The decision to retain the 3.5 percent minimum down payment was especially key, said Stevens. FHA can raise or lower premiums anytime, “but once you raise the down payment (minimum), that would be difficult to chip back.”

More importantly, raising minimum down payments would exclude large numbers of first-time buyers with good jobs who are solid credit risks, but simply lack the cash to make the type of down payments required in the conventional marketplace. 

Turning away qualified applicants because they couldn’t come up with another 1.5 percent in down payment cash would be an abandonment of FHA’s traditional mission of opening the door to homeownership for moderate-income families, especially first-time purchasers and minorities. 

Read the full article here. 

Written by Jason Oliva

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  • FHA’s measured reaction to the audit is appropriate. FHA’s MMI Fund is not Fannie and Freddie. It has weathered these capital ratio storms before. After nearly 79 years of successfully underwriting expansion of the middle class, FHA knows something about mortgage insurance. “Bailout” fears are overblown.

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