patrick.net
An Antidote to Corporate Media
1,197,049 comments by 14,096 users - porkchopXpress online now
GOP proposes increase in FHA down payments
invite response
2011 May 24, 9:21am 3,911 views 18 comments
Comments 1 - 18 of 18 Search these comments
I heard that the other proposal is that the maximum loan value for an area will be 125% of the median housing price for that area. However, it's unclear if the legislation suggested the cap will be the lesser of 125% of median or $625K. If Congress does nothing, $625K will be the new cap for high priced areas in October, down from $729K for high priced areas like the Bay Area. I'm also not sure who determines the median, FHFA?
These are both good reforms, although I think it's strange to have subsidized government home loans for people above median income if your goal is merely affordable housing.
PockyClipsNow
2011 May 24, 9:56am
729k FHA loan is almost 'end of world news' so ridiculous it would be an Onion news story from year 2001. haha now its real!
So are news headlines like '80% of vegas houseowners underwater'.
Combine this with Feds spending twice the tax revenue they take in and borrow/print the rest.
None of these things are sustainable - big changes coming when the Government Bubble collapses. but when is that? 100 years?
I wouldn't go that far -- FHA has a purpose. We just don't use it for its intended purpose.
If it strictly helped people who make low income, it would make more sense. However, we should consider whether some of those people should be buying houses in the first place when implementing such a program. With low income, home buying is a risk and may be an anchor preventing you from getting another job that might pay more if you can't move.
FortWayne
2011 May 24, 11:45am
Very excellent policy suggestion. Time to fix the flaw that helped foster the housing bubble.
I don't think going only to 5% is enough. Should still be 20%. And the limit of 600,000+ is rediculously high, thats not low income. If one can afford that price they shouldn't be on FHA. FHA should be limited to like 200,000.
Future Cash Buyer
2011 May 24, 11:52am
-20% down payment
-mortgage interest deduction for primary residence and up to $600k only
mortgage interest deduction for primary residence and up to $600k only
I would suggest removing the mortgage interest deduction entirely, but if we're going to limit it, I don't see why it should be allowed above the median price of housing in the U.S. This will also require tinkering with the AMT, because mortgage interest is one way many people avoid the AMT.
The mortgage interest deduction is an odd one. It used to be that all interest was deductible -- including credit cards. However, this provision was implemented in the tax code before we became such a debt-driven culture. One of the chief ways people paid interest when this tax provision was implemented was business interest. We still allow deductions for business interest, as we should, but somehow mortgage interest survived the purge of everything else.
Â¥
2011 May 24, 3:44pm
Moving from 3.5% to 5% is no biggie.
That's $5000 more dp on a $330,000 purchase.
However, the mortgage payment would be $100/mo less with 5% down, which might mean the price level rises 10% -- since $330,000 @ 3.5% down has the same monthly payment as $360,000 @ 5% down, LOL.
I hate real estate.
Moving from 3.5% to 5% is no biggie.
it's a big deal.
raising the minimum down payment to 5 percent would lower the agency’s loan volume by 40 percent in the next fiscal year and shut out 300,000 first-time home buyers.
However, the mortgage payment would be $100/mo less with 5% down, which might mean the price level rises 10% — since $330,000 @ 3.5% down has the same monthly payment as $360,000 @ 5% down, LOL.
Yep, a lot of people will just buy the most expensive house they can "afford".
I seldom if ever agree with anything the GOP says or proposes... but this is one piece of legislation I would totally support if proposed.
klarek
2011 May 25, 1:36am
I think it’s strange to have subsidized government home loans for people above median income if your goal is merely affordable housing.
Strange is an understatement. It's a giant crock of shit.
5% is a joke, but certainly better than the current 3.5%. They should be setting it to the average percentage cost of selling a house. It's ridiculous that taxpayer dollars are on the line for loans that are instantly underwater.
We still allow deductions for business interest, as we should, but somehow mortgage interest survived the purge of everything else.
Because Americans are stupid and our congresscritters believe there's something economically beneficial or noble in promoting debt ownership.
Â¥
2011 May 25, 2:09am
Yep, a lot of people will just buy the most expensive house they can “affordâ€.
Actually, the dynamic is that buyers bid up the cost of housing to the point of unaffordability.
The spirit is willing but the supply is weak. There are 100 homes on the market in 95014, and 1,000,000 people who would like to buy there if the price was right. High bidder gets the house.
It's not that people are stretching to get the nicest house they can, it's the market itself adjusting to what the buyers can afford to pay. This is why a house that sold for $40,000 in 1975 sells for $1.4M today.
5% is a joke, but certainly better than the current 3.5%.
Yes, 5% doesn't go far enough. What would go far enough is a down payment that is sufficient for private lenders to get back into the market. It is wrong to subsidize this stuff.
It’s not that people are stretching to get the nicest house they can, it’s the market itself adjusting to what the buyers can afford to pay. This is why a house that sold for $40,000 in 1975 sells for $1.4M today.
I'm not sure which particular house you are talking about since I don't know too many that went from $40K to $1.4M today, but affordability is just one piece of the puzzle. Interest rates were high in the 70s, so yes, people couldn't afford as expensive houses, but also think about inflation since then, land use restrictions added since then, securitization, demand curves, etc. There are many other factors that have resulted in the current scenario.
Â¥
2011 May 25, 9:08am
but also think about inflation since then
right. Wage inflation will always get sucked into land values.
securitization, demand curves, etc.
All this is irrelevant. Prices in areas with any supply/demand imbalance will be set at the limit of buyer affordability. It doesn't matter if there are 2 buyers or 2000 buyers. High bidder takes the property.
Â¥
2011 May 25, 9:11am
What would go far enough is a down payment that is sufficient for private lenders to get back into the market.
It's more the interest rate risk that is keeping lenders out of the market. Lending for 10-30 years at 4% is pretty risky.
Plus they know if interest rates get driven up without concomitant wage increases, man housing will be fucked.
It's the government intervention that is holding the market together as it is.
That and the leeches.
It’s more the interest rate risk that is keeping lenders out of the market. Lending for 10-30 years at 4% is pretty risky.
Plus they know if interest rates get driven up without concomitant wage increases, man housing will be fucked.
It’s the government intervention that is holding the market together as it is.
Yes, but it's also the government interference that is allowing 3.5% loans.
http://www.washingtonpost.com/business/economy/gop-proposes-increase-in-fha-down-payments/2011/05/23/AF3NX69G_story.html
By Dina ElBoghdady, Published: May 23
A Republican-led proposal circulated Monday would boost the down payment requirement for mortgages backed by the Federal Housing Administration, a move some industry experts said would shut potential home buyers out of the market.
Borrowers who take out FHA-insured mortgages are permitted to put down as little as 3.5 percent, making those loans an especially attractive choice for first-time home buyers. But as defaults rose during the housing market’s worst days, FHA’s cash reserves dwindled, creating concerns that taxpayers may have to come to the agency’s rescue.
The Republican proposal would require most FHA borrowers to put down at least 5 percent. Those who support the idea say that forcing borrowers to have more equity in their homes would better protect homeowners against default and thus improve the agency’s finances. The issue will be discussed Wednesday at a House Financial Services subcommittee hearing led by Rep. Judy Biggert (R-Ill.).
The proposal has not been formally introduced in legislative form. And it’s unlikely to gain traction without bipartisan support, said Jaret Seiberg, an analyst at MF Global Inc. But if enacted, its immediate impact on the housing market would be negative, he said. Gathering the upfront cash is often the biggest hurdle for those buying their first homes.
Demanding more money down“would make it even harder for first-time buyers to enter the housing market regardless of their incomes or earning potential,†Seiberg wrote in a note to clients Monday.
Mark A. Calabria, director of Financial Regulation Studies at the Cato Institute, said larger down payments would no doubt have some drag on the housing market. “But it’s a modest drag because it’s a fairly small change,†said Calabria, who is scheduled to testify at Wednesday’s hearing. “It’s a smart and reasonable thing to do.â€
A similar Republican proposal stalled in the House last year after the Obama administration vehemently opposed it, warning that such an increase would undermine the already fragile housing market by shrinking the agency’s loan volume.
At a hearing last year, FHA Commissioner David H. Stevens told House lawmakers that raising the minimum down payment to 5 percent would lower the agency’s loan volume by 40 percent in the next fiscal year and shut out 300,000 first-time home buyers.
Since then, the FHA has raised its down payment to 10 percent for borrowers with the poorest credit. In a report to Congress, the administration said it would consider raising FHA’s down payment requirement as part of a broader effort to curb the government’s role in housing finance. Separately, the administration teamed up with banking regulators to propose a rule that would enable only those who put down 20 percent to get the lowest interest rates, though that rule does not apply to FHA borrowers.
The administration declined to comment Monday on the most recent Republican proposal. But at least one banking industry consultant, Brian Chappelle, plans to tell lawmakers Wednesday that the proposal is unnecessary, especially now that FHA has raised the fees it charges borrowers by 60 percent since 2008 and dramatically improved the credit quality of its borrowers in recent years.
#housing