Reporting from Los Angeles and Washington Alejandro Lazo — Thousands of Southern California home buyers, and millions nationwide, will have to come up with more cash and reach higher minimum credit scores to get a government-backed mortgage under changes unveiled by the Federal Housing Administration.
Some loans might require more than the current 3.5% minimum down payment, but the Obama administration is resisting calls for an across-the-board hike. Instead, it is looking at other ways to increase the amount of cash at closing, such as requiring borrowers to pay more of their mortgage insurance premiums up front.
The FHA, which insures mortgages with low down payments, is scrambling to balance its increasingly important role in propping up the housing market with faltering finances of its own that could require a government bailout.
The agency’s share of home loans has surged from 3% in 2006 to nearly 30% this year as credit has tightened and borrowers’ bank accounts have been depleted. But that increased exposure has led to more defaults, driving the FHA’s reserves below their mandated levels.
“We’ve learned from recent history that the market is fragile, and we have to plan for the unexpected,” Housing and Urban Development Secretary Shaun Donovan, who oversees the agency, said at a House hearing Wednesday.
In Southern California, FHA-backed loans have become a crucial source of financing for first-time home buyers, particularly those snapping up foreclosed homes. FHA loans made up 38.3% of all Southland purchase loans in October, up from 32.5% a year earlier and just 2% two years before, according to MDA DataQuick, a San Diego real estate research firm.
George Ramirez, a sales manager for Citibank, and his wife, Leticia, a social worker, got an FHA-insured loan in August 2008 to buy a three-bedroom home with a swimming pool in La Puente. Without such a loan, he said, “there is no way” they could have bought it. The FHA let them put $8,250 down for the $275,000 house, or 3%, the minimum then.
“These loans are actually going to help people who are looking for the American dream,” Ramirez said, “and if they start restructuring, it’s going to hurt them.”
Details of the changes announced Wednesday weren’t expected to be finalized until next month; Donovan …
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