Draft Bill Would Increase Down Payment to 5% for FHA loans on Walnut Creek Homes

Republicans on the House Financial Services Committee have drafted legislation that would raise the minimum down payment for FHA mortgages to 5 percent, cut FHA loan limits in most markets, and move the Agriculture Department's rural housing program to FHA's parent agency, HUD.

Though the draft bill has not been introduced, titled or assigned a number, it is expected to be the main subject of a hearing Wednesday before the Subcommittee on Insurance, Housing and Community Opportunity, chaired by Rep. Judy Biggert, R-Ill. After that, the bill is likely to be formally introduced and sped through subcommittee and committee votes and head for action by the full House.

The text of the draft bill appears to be a partial answer from House Republicans to the Obama administration's call earlier this year for a smaller federal government footprint in housing.

By lowering maximum FHA loan limits in large numbers of local areas -- well below even the limits that are already scheduled to kick in Oct. 1 -- the bill would squeeze down FHA loan volume across the country, cutting a resource for some home purchasers who can't obtain a conventional mortgage.

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Here are some examples of current FHA loan ceilings, how they're scheduled to adjust in October, and where they'd end up under the Republican plan:

• In Los Angeles County, the present high-cost area maximum is $729,750, which was set by the federal economic stimulus legislation passed by Congress following the financial crisis of 2008. That ceiling is scheduled to drop to $625,500 Oct. 1. Under the new bill, however, the maximum FHA-insured loan amount allowed in Los Angeles would be $412,500 -- a $317,250 plunge from the current limit and $213,000 below the scheduled reduction this fall.
• Other counties in high-cost California would experience even sharper declines, such as Monterey, where the maximum would decline by $436,000 and Contra Costa, where the drop would be $379,750. Every county in California -- from big urban communities to rural areas -- would be on the losing end of the new FHA equation, and most reductions would be in the six figures.
• The lower limits would be significant in other states as well. Monroe County, Fla., would see maximum FHA loan limits go from $729,750 to $425,000. Under the scheduled Oct. 1 statutory decrease, the county -- which comprises the Florida Keys -- would have a $529,000 maximum. Sarasota, Fla., would see a $261,250 drop under the bill, Miami-Dade a decrease of $161,250, and Orange County (Orlando) limits would decline by $128,750.
• Large counties in the high-cost areas around Washington D.C. would see FHA limits drop by anywhere from $398,500 (Prince George's, Md.) to $366,250 in Baltimore. Most New England and mid-Atlantic states would end up with lower loan ceilings along with major markets in the Midwest and the Rocky Mountain states.

via inman.com

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