Congress is discussing changes to the Federal Housing Administration that could have a significant impact on homebuyers, sellers, and the future of the real estate market here in San Antonio. Some of these proposed changes would raise the minimum down payment for FHA-insured mortgages to 5 percent, as well as allow FHA loan limits to revert to 115 percent of a county’s median home price.

Since its inception in 1934 FHA has provided safe, affordable mortgage financing to millions of home buyers. FHA plays a critical role in the nation’s housing finance system. REALTORS^® believe changes should not be made at consumers’ expense by reducing the availability and increasing the cost of mortgage capital, especially when the market is still recovering.

Many first-time homebuyers rely on FHA-insured loans to purchase a home, which only require a 3.5% down payment in most cases. According to the National Association of REALTORS^®, one-third of recent buyers purchased their homes with an FHA-insured mortgage.

FHA is a leader in insuring safe, low down payment mortgages to responsible, qualified borrowers. REALTORS^® oppose any increases to the down payment requirements, which would put home ownership out of reach for many families. The principal barrier to home ownership is accumulating the money needed for down payment and closing costs. Increased down payments will make it difficult for both first-time and repeat buyers.

Twenty-one percent of recent buyers made less than a 3 percent down payment on their home purchase, according to NAR research. NAR estimates that it would take the average American family, living frugally and saving at the current national rate, nearly seven years for a 5 percent down payment on a $200,000 home and more than 10 years to save for 10 percent down.

REALTORS^® are also urging Congress to make the current FHA loan limits permanent. Current limits range from $271,050 to $729,750, based on 125 percent of the local area median home price. These limits are set to expire on September 30, 2011, and revert to formulas based on 115 percent of the area’s median home price, but some public policy makers have proposed allowing those limits to fall even further.

NAR estimates that reverting to lower loan limits will affect 612 counties in 40 states and the District of Columbia, with an average loan limit reduction of more than $50,000.
Reducing the current loan limits would restrict availability of mortgage loans all over the country, as well as increase cost of capital to consumers. These proposals will have an even greater dramatic impact on liquidity and could halt the housing market recovery.

FHA is the only government agency that operates entirely from self-generated income, costing taxpayers nothing. FHA serves the needs of millions of hardworking Americans and has taken critical steps in the housing finance system to ensure long-term financial soundness. It is imperative that we maintain the current down payment requirements and loan limits to safeguard home ownership.