Down payments in the future for FHA

As foreclosures have increased the FHA’s cash reserves have dropped below the 2% capital reserves required by Congress. More than 3% of FHA insured mortgages are currently in foreclosure, and 1 in 6 FHA mortgages are delinquent.

The FHA estimated that as many as 300,000 homebuyers would have been shut out of the housing market in 2009 if it required a 5% down payment. According to FHA Commissioner David Stevens the increased down payment requirement would add a minimal amount of money to the agency’s coffers and could potentially undermine the housing market.

The changes that have been adopted require a 10% down payment from those with a credit score below 580 and will increase the up-front funding requirement from 1.75% to 2.25%. Additionally, the amount a seller will be allowed to contribute to the buyer to pay for closing costs dropped from 6% to 3%.

The higher down payment would have contributed a modest $500 million to the agency's cash reserves in fiscal 2011, Stevens said. By contrast, a series of policy changes embraced by the FHA would raise an additional $4.1 billion, Stevens said.