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WASHINGTON -(Dow Jones)- Republicans in the U.S. House of Representatives are circulating legislation to raise the minimum down payment for loans backed by the Federal Housing Administration, the main source of mortgage money for first- time homebuyers.
Currently, homeowners are able to take out FHA-backed loans with a minimum down payment of 3.5%. A draft bill being circulated by Rep. Judy Biggert (R., Ill.), would raise that minimum to 5% in an effort to stabilize the agency’s finances.
Republicans aim to redesign government mortgage programs to strike “the right balance for taxpayers and homebuyers,” Biggert said in a statement Monday.
A House subcommittee on Wednesday is scheduled to discuss a draft version of the bill, which would also make changes to several other government housing programs.
House Republicans have made scaling back the government’s role in the housing market a key priority. However, they are encountering resistance from the housing industry, which believes such supports are essential to keep the moribund housing market from falling further.
Jaret Seiberg, a financial policy analyst at MF Global’s Washington Re Group, said the bill could be good for private mortgage insurers such as PMI Group Inc. and MGIC Investment Corp., which compete with FHA.
However, he added that it could hurt the housing market in the short term.
“It would make it even harder for first-time buyers to enter the housing market regardless of their incomes or earnings potential,” Seiberg wrote in a note to clients.
The FHA doesn’t make loans but insures them against default. The agency’s volume grew rapidly in the wake of the mortgage bust and had critics warning it would need government funding for the first time in its history. The Obama administration hiked fees and tightened lending standards, and an audit released last year showed the agency’s finances stabilizing.
Loans backed by the FHA made up nearly 18% of new loans made in the first quarter, according to trade publication Inside Mortgage Finance.
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