House Republicans make moves to curtail FHA-backed loans

Miami /
May.May 23, 2011 05:43 PM

House Republicans have drafted controversial legislation that would raise the minimum down payment and curtail the maximum size of Federal Housing Administration-backed loans in a move that has angered the National Association of Realtors, according to the Wall Street Journal.

Homebuyers who take out FHA loans are required to pay premiums to the government. Those premiums are then used to pay out claims to lenders if a borrower should default. With a good credit score, a homeowner may currently take out a loan with a minimum down payment of 3.5 percent. If the legislation passes, the down payment would increase to 5 percent. Republicans, such as Rep. Judy Biggert, say they’re trying to strike the correct balance for taxpayers and homebuyers in an effort to stabilize the agency’s finances.

On Oct. 1, the maximum size of FHA-backed loans will drop to $625,500 from $729,750, without the help of the bill. With the bill, it would fall further, to 125 percent of each county’s median home price.

The move has encountered resistance from real estate brokers and Democrats, who believe support is essential to keep the market afloat. Almost 18 percent of new loans made in the first quarter of 2011 were backed by the FHA. [WSJ]


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