Does anyone know good reasons why FHA and Ginnie Mae are still doing this? I don't understand the method to their madness other than propping up a busted market and pure greed. After Fanny and Freddie, I'd think there'd be a drive to delist GSEs and make them wholly owned by the government again. WSJ had another article about this. The next Fannie Mae FHA Head Rejects Calls for Higher Down Payments By Nick Timiraos http://blogs.wsj.com/developments/2009/10/13/fha-head-rejects-calls-for-higher-down-payments/ SAN DIEGO — The head of the Federal Housing Administration warned that raising down payment requirements or taking similar steps to limit the pool of eligible buyers for FHA-backed loans would hamstring a fragile housing recovery. “If it weren’t for this program, assuming that risk is being protected, this would forestall recovery of key metropolitan markets across the nation,” said David Stevens, the FHA commissioner, during a panel session at the Mortgage Bankers Association annual convention in San Diego on Monday. Rep. Scott Garrett (R., N.J.) introduced a measure in Congress earlier this month that would require minimum down payments of 5%, up from 3.5%, on loans backed by the FHA. (See FHA Should’ve Done This Long Ago.) But Mr. Stevens warned against “jumping to conclusions” and making credit standards tighter just as some signs show that housing is beginning to stabilize in certain housing markets. “When I see members of Congress move a bill out that says raise it to 5%…I get very concerned,” he said. “It isn’t the down payment on its own that causes a default.” Mr. Stevens’ strong defense of the FHA’s current role in the marketplace drew applause from the otherwise muted audience of mortgage bankers, brokers and other industry personnel during the trade association’s annual meeting. The FHA has seen its market share balloon since the subprime market collapsed more than two years ago and led most private investors to exit the mortgage market. The New Deal-era agency’s standards were seen as too strict during the heyday of subprime lending because it required borrowers to document their incomes and pay minimum down payments, but today it remains one of the last sources of low down-payment loans. Concerns over the agency’s risk to taxpayers has grown in recent months after the FHA said that its estimated capital reserves would drop below federally mandated levels in recent weeks. Mr. Stevens says that there’s no immediate risk of a taxpayer bailout, but critics suggest that a prolonged slump in housing prices could require the agency to ask Congress for money for the first time in its 75-year history. Mortgage-industry executives also exhorted industry colleagues not to back off of efforts to modify loans given early “glimmers of hope” that housing is reaching a bottom. “It is an awesome task that is in front of us,” said Charles “Ed” Haldeman Jr., the chief executive of Freddie Mac. He warned that there could be “increasing softness” in housing in the coming months. “It would be a real mistake to be too confident about a return to normalcy,” he said.
I'll preface this by saying I don't know anything about the specifics of the FHA and their lending practices, but the flip side of the argument is this: even despite an unprecedented drop in home values and a total shock to the financial system which caused private lenders to require bailouts and - in many cases - fail, the FHA hasn't required any assistance as of yet. Certainly, if things get worse, they may very well do so, but it seems whatever method they had in place was designed and equipped to handle a fairly large shock to the system.
People should be required to make some kind of down payment. In my opinion, anyway. I think 5% is extremely generous. One should need to demonstrate some ability to make mortgage payments. Coming up with 5% shows the ability to save and a certain level of responsibilty. My opinion, of course.
We all know the real issue that caused the problems was the lack of scrutiny of the income/credit of buyers. I put down as little as possible on my last home and will probably do the same next time. I'd rather have the money in my pocket and thanks to my income history and credit score I have that option. I would not like to have that taken from me because so many lenders purposely put people in homes they knew they could not afford. Perhaps in addition to the credit/income checks people should have to prove they have X amount of dollars readily available to them and have had that amount for at least 6 months or so.
We should strengthen the lending standards, requiring a larger down payment is part of it, along with better credit/income verification. 5% should be the bare minimum, if we stuck to the 20% requirement, we wouldn't have nearly the mess we have now.
If you have a solid income stream and credit history, then a low downpayment loan isn't a major risk. Someone who went to med school and brings in a substantial income but is at the early stages of his career is probably not a high-risk loan candidate, but because of the length of school, he's not going to have 20% to put down unless he waits a long time. The FHA loans - highly documented but low down payment - makes it possible for low-risk people to buy younger. I don't see a problem with that. As noted in the article, their lending standards are fairly high and is probably the reason they haven't failed whereas others have.
Higher down payment requirement should be part of the overall increased standards. I am sure you understand lender takes everything into consideration. 5% certainly is not high at all. FHA might be ok now, it might not be in the future if the market keeps declining and more high risk buyers move to FHA since there isn't much alternative.
Certainly - but I'm not sure going from 3.5% to 5% helps much either. The same basic buyers will qualify. You might make a minor difference on the fringe, but that's about it. That's true - but that will always be the case unless you get to 100% down. Even at 5% down or 10% down or 20% down, if the market crashes hard enough, you'll have problems. The FHA survived the worst housing crash we've ever had in US history. I'm not sure its fair to criticize them at this point for their lending standards.
I disagree. I'd rather have the disposable cash handy in case of economic hardships down the road. I really don't think someone who can prove they have had steady, substantial income and good credit is much of a risk. I don't know too many people who work hard to save money and keep all their finances in order over the course of 10+ years just so they can buy a house they can't afford. They are obviously at least decent at managing money. The problem was lenders looking the other way in order to put cash in their pockets knowing they were putting people in houses they could not afford and into loans that were basically time bombs.
Its not about being 100% risk free, but manage it within the stress limit. With the housing market tanking and more higher risk borrowers moving into FHA loan, minor difference on the fringe might be the tipping point. I am not really criticizing, just think its a good idea in general to have higher lending standards considering our current situation.
Its not about Dave_78 being a responsible person, but rather manage the risk of the entire mortgage pool, which includes every kind of borrower.
