FHA Defends 3.5% Down Payment

The head of FHA said that raising the down payment for FHA loans would hurt an already fragile housing recovery.  I agree to a certain extent but they do need to tighten FHA guidelines.  I know that this will hurt the business in the short term but in the long run it will prevent this from happening again.  I say this because I don’t want for anyone to have to go through this housing crisis ever again even though I know we will.  There have been a lot of good people who have lost their homes and business due to irresponsible lending. 

But Mr. Stevens warned against “jumping to conclusions” and making credit standards tighter just as some signs show that housing is beginning to stabilize in certain housing markets. “When I see members of Congress move a bill out that says raise it to 5%…I get very concerned,” he said. “It isn’t the down payment on its own that causes a default.”

He does make a good point but you have to tighten something if we continue to have defaults.  My thought is if it is because some of these borrowers are losing their jobs they should sign up for the Rainy Day Foundation which is a 1 time cost of $500 and they will pay up to $1800 of your mortgage payment for 6 months if you lose your job within the first 2 years of buying.  You cannot be self-employed. 

http://blogs.wsj.com/developments/2009/10/13/fha-head-rejects-calls-for-higher-down-payments/