Prior to the 2008 housing crisis, home sellers offered DPAs to FHA borrowers and inflated sales prices to cover the costs, costing the FHA program too much.
Today’s housing environment is different. According to one research agency, financiers have much less control over home sales prices and less control over valuation agencies. paper It was published by Ted Tozer, Adjunct Research Fellow at Urban Institute and former President and CEO of Urban Institute. Ginny May.
“By lifting this restriction and allowing lenders to offer DPAs through self-funded or subsidized programs, policymakers could remove down payment hurdles for many families,” Tozer said.
Lenders can offer DPAs through two channels. The first channel is self-funded with unlimited offerings.
The lender could charge the borrower 1% higher interest rate to raise the 3.5% down payment, which would allow the lender to Ginny May– A guaranteed mortgage-backed security (MBS) that generates enough premium to cover the required down payment, Tozer explained.
These loans will continue to have access to all features of the FHA Streamlined Refinancing Program, which will reduce payments if borrowers continue to use their new mortgages.
“Given the robustness of using premium-priced Ginnie Mae MBS to fund the program, we don’t see a need to limit its availability,” Tozer said.
The second channel is through subsidies provided by lender corporate funds.
Lender subsidies have limited funding, so the program could be limited to certain income levels or preferred markets, the paper said.
Through this channel, borrowers still have to pay mortgage insurance costs. This is the difference between the private mortgage insurance required by GSE loans and the 0.55% annual mortgage insurance premium required by the FHA.
“The FHA will work with Congress to amend the FHA Modernization Act so that only entities that may affect the sale price of a home may be barred from providing DPAs,” Tozer said.
As an alternative solution, Tozer came up with the idea of making the FHA program a zero down payment program. It was first proposed by the George W. Bush administration in 2004.
“If this change is made, the FHA program will join other government insurance programs offered by the FHA. US Department of Veterans Affairs and the US Department of Agriculture No down payment is required,” Tozer said.
The paper’s proposal to amend the FHA Modernization Act comes amid affordability pressures for first-time homebuyers.
A shortage of homes for sale has driven home prices soaring, with 30-year fixed rates hovering near 7% in the past two months.
“Despite the Federal Reserve’s attempts to cool the market, housing affordability is still perilously close to the 37-year low reached late last year,” said Andy Walden. Black KnightVice President of Corporate Research at .
