By Dawn Kopecki
Dec. 2 (Bloomberg) -- Homebuyers seeking to take advantage of a government mortgage-guarantee program will have to put up more cash in some situations as officials look for ways to shore up finances at the Federal Housing Administration.
“Down payment is one of the elements we’re looking at,” Housing and Urban Development Secretary Shaun Donovan told reporters today after a congressional hearing in Washington. “A second is the upcoming mortgage insurance premium and then other cash that needs to be brought to the table.”
The FHA is also considering cutting the amount of home seller concessions a buyer can receive by half to 3 percent of the purchase price to combat inflated appraised values, Donovan told the House Financial Services Committee. The minimum credit scores required for borrowers may also be raised, and the guarantee fees charged to lenders may increase, Donovan said.
“We have made the decision to exercise our authority to increase the up-front cash that a borrower has to bring to the table in an FHA-backed loan, to make sure that FHA borrowers have more ‘skin in the game,’” Donovan told the committee.
HUD, which oversees FHA, will provide details in January, he said. Some changes may take affect in the first quarter while others, like raising annual insurance premiums, need congressional approval and will take more time, he said.
Loss Reserves
The National Association of Realtors said FHA must be careful not to raise costs too high for borrowers and constrict access to credit.
“Requiring a larger down payment will make homeownership out of reach for many families and for others could deplete their cash reserves for home and other emergencies,” said Vicki Cox Golder, an Arizona Realtor and president of the National Association of Realtors, which represents the industry from Washington.
The FHA’s mortgage insurance reserves fell to the lowest level in history last fiscal year and the government said more steps are needed to shore up the agency that guarantees one of every five single-family loans. The insurance fund tripled in size last year and has taken on more risk as private industry sources for lenders to finance and insure home loans dried up and mortgage default rates rose to record highs.
FHA’s net capital ratio, or reserves after accounting for projected losses, fell to its lowest level on record, 0.53 percent, in the year ended in September, from 3 percent in fiscal 2008 and 6.4 percent in 2007, according to an annual review released last month.
FHA, along with federally controlled mortgage-finance companies Fannie Mae and Freddie Mac, accounted for more than 90 percent of all U.S. home loans in the first half of this year.
The agency may raise the up-front insurance premiums of 1.75 percent that it charges lenders to guarantee the loans, Donovan said. The agency is seeking permission from Congress to increase its annual insurance rates as well, which will raise mortgage costs for consumers, Donovan said.
To contact the reporter on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net.
Last Updated: December 2, 2009 16:10 EST