WASHINGTON (May 25, 2011)—Eliminating the Federal Housing Administration’s 3.5% downpayment mortgage program would drive up the cost of home ownership and make it harder to find a loan in today’s market where private mortgage financing has dried up, NATIONAL ASSOCIATION OF REALTORS® President Ron Phipps told the House Financial Services Subcommittee on Insurance, Housing and Community Opportunity today at a hearing on FHA reform.
FHA plays a critical role in the nation’s housing financing system—it provides guarantees so lenders can make safe, affordable mortgages to consumers in all markets and in all economic conditions, Phipps said.
FHA does this while operating in the black—its programs don’t cost the taxpayers anything. “In fact, FHA programs have helped bring net revenue to the U.S. Treasury, helping reduce the budget deficit,” he said.
Some legislators want to cut back FHA as a way to reduce the government’s involvement in the housing market. “NAR supports efforts to strengthen FHA and reduce its current market share; however, changes shouldn’t be made at consumers’ expense by drastically impacting the availability and cost of mortgage capital for millions of Americans, especially while the housing market recovery remains fragile,” he said.
Raising the current 3.5% downpayment to 5% will do little to reduce the risk of default—strong underwriting guidelines are better at reducing risk—but a higher downpayment will put home ownership out of reach for families who can afford the monthly payments, but not a larger downpayment.
NAR estimates that for the average American family living frugally and saving at the current national rate, it would take seven years to save a 5% down payment on a $200,000 home and more than 10 years to save for 10% down.
The Congressional panel is also looking at whether the current FHA mortgage loan limits—the maximum amount you can borrow with an FHA loan—should be kept or lowered.
Phipps argued that decreasing the current loan limits would make it harder and more expensive for consumers to get mortgages because fewer properties would fall within the FHA loan limit.
NAR estimates that reverting to lower loan limits used before the housing crisis would push down the size of FHA mortgages available in 612 counties in 40 states and the District of Columbia by an average of $50,000.
If Congress voted to reduce the loan limits too much, the housing market recovery could stall, he added.
“Allowing the current loan limits to decrease will have an immediate negative impact on mortgage availability. FHA has played a critical role in holding down mortgage rates. Without FHA, the higher mortgage rates paid by consumers would flow into noncompetitive banks that are too big to fail,” Phipps said.