QandA with Scott Senner: INCREASED MINIMUM DOWN PAYMENT COULD CUT BACK ON HOME SALES [The Oklahoman, Oklahoma City]

Dec. 9--Q: The Federal Housing Administration is considering raising the minimum down payment for an FHA-backed home loan from 3.5 percent to 5 percent. What effect would that have on the marketplace in the Oklahoma City area?A: Raising the minimum down payment on FHA loans would have an extremely negative impact on our market, as well as the rest of the country. It would make it much more difficult for first-time buyers to purchase homes. For example, at the Oklahoma City market's average sale price of $145,000, a borrower would be required to come up with an additional $2,175, on top of the $5,075 now required. That could very easily knock buyers out of the market.Q: The FHA also is considering lowering the maximum seller contribution from 6 percent to 3 percent. Can you explain how that works and estimate the impact of the increase here?A: Currently, the seller of a property can pay up to 6 percent of the purchase price toward the buyer's closing costs, which is usually a lot more than is needed (except on small loans). On most loans over $100,000, the total closing costs to the buyer will be about 3 to 4 percent of the purchase price, so if this amount were to be lowered it would not have that big of an effect on the market.Q: The FHA also wants to establish a minimum credit score for FHA borrowers and increase the cost of mortgage insurance. The FHA says it has to do something to keep from going broke. Because other credit sources have dried up, the FHA's market share has shot up from 3 percent to more than 30 percent now. How has the popularity of FHA-backed loans here changed over time? What will happen if all these changes are made?A: FHA is basically an insurance company. FHA does not lend any money at all. They insure lenders against losses. It is definitely true that we are in an FHA market. I would estimate that well over 60 percent of all loans in our market are insured by FHA. While FHA does need to make some changes to protect against loss, making it harder for people to buy homes is not the answer. Since FHA's revenue comes from mortgage insurance premiums -- not from taxpayers, by the way -- if they make it harder to buy, their revenue stream will be even tighter. Think of it this way, if Allstate insurance needs to raise more money, do they make it harder for people to get car and home insurance? That does not make any sense. People are not more likely to go into foreclosure with just a 3.5-percent down payment instead of 5 percent. They are likely to go into foreclosure because something catastrophic happened in their life -- job loss, medical emergency, and so on -- and they do not have any savings. If FHA wants to change anything, they should look at making people have at least a three- or four-month reserve of savings in the bank. That way, there is some backup if something bad happens. If the HUD secretary is successful in getting these changes passed, all that will be accomplished is fewer people will be able to buy homes and FHA will have even less money to pay claims.RICHARD MIZE, REAL ESTATE EDITORTo see more of The Oklahoman, or to subscribe to the newspaper, go to http://www.newsok.com.Copyright (c) 2009, The Oklahoman, Oklahoma CityDistributed by McClatchy-Tribune Information Services.For reprints, email tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.