The Federal Housing Administration plays a critical role in the nation’s housing financing system, providing safe, affordable mortgage financing to consumers in all markets during all economic conditions, the National Association of REALTORS® said in testimony today.
NAR President Ron Phipps spoke before the House Financial Services Subcommittee on Insurance, Housing and Community Opportunity regarding a discussion draft of legislation to reform FHA.
“As the leading advocate for home ownership, NAR strongly supports FHA’s single- and multifamily mortgage insurance programs. Since 1934 millions of qualified home buyers have relied on FHA-insured loans to purchase a home, and particularly in recent years when private financing dried up,” said Phipps, broker-president of Phipps Realty in Warwick, R.I. “NAR supports efforts to strengthen FHA and reduce its current market share; however, changes should not 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.”
NAR supports sections of the discussion draft that would help FHA remain fiscally strong and better monitor risk, increase enforcement tools and protect taxpayers but opposes any increases to the down payment requirements.
Phipps testified that FHA remains a leader in insuring safe, low-down payment mortgages to responsible, qualified borrowers, with as little as a 3.5 percent down for borrowers with good credit.
“Proposals to further increase FHA down payment requirements are unwarranted,” Phipps said. “The current 3.5 percent down payment and closing costs represent a significant financial commitment. Requiring a larger down payment does little to reduce risk of default compared to strong underwriting requirements, and only puts home ownership out of reach for many families who have the income necessary to carry the cost of the home purchase,” Phipps said.
NAR has long maintained that the principal barrier to home ownership is accumulating the money needed for down payment and closing costs, and estimates that it would take the average American family, living frugally and saving at the current national rate, nearly seven years to save for a 5 percent down payment on a $200,000 home and more than 10 years to save for 10 percent down.
Phipps also testified about the importance of making permanent the FHA mortgage loan limits currently in effect. He stated that decreasing the current loan limits would reduce the availability of mortgage loans across the country, not just in higher cost areas, and increase the cost of capital to consumers. NAR estimates that reverting to the lower statutory limits on October 1 will impact 612 counties in 40 states and the District of Columbia, with an average loan limit reduction of more than $50,000. Further reductions to the loan limits could have an even greater dramatic impact on liquidity and halt the housing market recovery.
“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.
Phipps praised FHA for continuing to serve the needs of millions of hardworking American families and for the steps the agency has taken to ensure its long-term financial soundness. “FHA is the only government agency that operates entirely from self-generated income, costing taxpayers nothing. In fact, FHA programs have helped bring net revenue to the U.S. Treasury, helping reduce the budget deficit,” he said.