The Senate Banking Committee approved a bill last week that loosens regulations on the Federal Housing Authority (FHA).

The FHA insures loans for many buyers of residential real estate.

You don’t hear a lot about FHA here in Massachusetts, because of low dollar limits on the loans they will insure.

The new law would change that, according to the Wall Street Journal:

FHA-insured loans lost market share over the past decade as lenders found that subprime loans were more lucrative and easier to arrange. The bill would increase the maximum size of loans that can be insured by the FHA in high-cost areas, such as California.

Currently, the FHA can’t insure loans greater than $362,790, largely shutting it out of the market even for modest homes in some areas. The bill would raise that to the local median home price or $417,000, whichever is less.

The bill would also lower the minimum down payment to 1.5% of the appraised value of the property from 3%.

That sounds all wel … wait!!! What?

The bill would also lower the minimum down payment to 1.5% of the appraised value of the property from 3%.

No.

That’s a terrible idea.

Now, I’m not saying that how much money you have invested in your home is indicative of whether or not the bank ends up foreclosing on your loan (but maybe that’s true?), but I think it’s safe to say that people who have higher levels of equity in their homes are in a much better situation. If you have 5-10% equity in your home, and have to sell it due to a lost job or because you get sick, you have many more options than if you have 1.5% invested and the market tanks. You won’t be able to cover your agent’s commission, with that, much less be able to absorb any market loss.

Nice try, but Congress can, and should, do better.

More: House Passes a Bill Curbing Mortgage Brokers – By Alex Frangos, The Wall Street Journal

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Updated:  1st Q 2018

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