FHA seeks to loosen
rules for mortgages
The Federal Housing Administration wants to be allowed to make federally insured mortgage loans that would not require a down payment or cash at closing.
The FHA commissioner announced the proposal Jan. 19, saying it would be included in President Bush's fiscal 2005 budget. If approved by Congress, the plan would eliminate the statutory requirement of a minimum 3 percent down payment for FHA-insured single-family mortgages for first-time homebuyers. Preliminary figures indicate the new FHA mortgage product could generate 150,000 homebuyers in the first year alone.
Under the rules proposed for the program by the U.S. Department of Housing and Urban Development, families would be required to undergo pre-purchase housing counseling. There would also be a slightly higher mortgage insurance premium, which would decrease over several years. For example, for a $100,000 mortgage with zero down payment, the borrower would pay approximately $50 a month more than the regular FHA borrower for the insurance.
Local insurers say such no down, no cash at closing loan programs are already available on the commercial market, but the new program would make FHA loans competitive with other existing loans.
"There are several no-down loan programs," said Tom Zimmerman, president of lender Hawaii HomeLoans Inc. "For example, we have a program that allows for 107 percent financing so you can buy it, roll in your costs and consolidate other debts. In that case, there is also no mortgage insurance."
Zimmerman said the rate for such a loan would be a little higher than the standard 20 percent down payment type of mortgage loan; but at today's low interest rates, it would still be low.
There also are several loan products that allow for an 80 percent financed first mortgage and a 20 percent second mortgage. No mortgage insurance is necessary on those loans either, he said.
Claudine Allen, operations analyst at Hawaii's HUD office, said if the proposal is approved, it doesn't necessarily mean mortgage loan limits would automatically adjust to meet Hawaii's higher costs for housing. "Mortgage limits are based on current market data," she said.