(SACRAMENTO) – Statement of Assemblymember Ted W. Lieu (D-Torrance) on proposed Federal Housing Administration (FHA) loan changes:

“I commend the Federal Housing Administration for all of their actions to help stabilize the housing market. However, I believe the proposals being considered by FHA to require home buyers to come up with more money for down payments as well as an increase in upfront mortgage insurance payments to qualify for an FHA mortgage is a step in the wrong direction. First, these new qualifications will disproportionately penalize a state like California where housing prices are much higher than the national average. A difference of one and a half points is quite large compared to loans in other states with much lower housing prices. For example, on a $400,000 loan, the current down payment requirement of 3.5 percent would be $14,000. Increasing it to 5 percent would increase the down payment to $20,000, which is a fairly big difference for many people in California. Plus, if you add on an increase in upfront mortgage premiums, you will end up excluding even more Californians from buying homes.

Second, this is exactly the wrong time to do this. We are still in the midst of the worst recession since the Great Depression. While the stock market is improving, the housing market is still clearly on the rocks. States like California need these FHA loans to help our economy recover.
Finally, one of the causes of the foreclosure crisis was risky, exotic adjustable rate loans that spiked rapidly, causing people to go into default and lose their homes. FHA loans are different. They are traditional loans with fixed rates and have much less risk. That’s what makes them so attractive and why they are a stabilizing force in the troubled housing lending market.

FHA is right to look for ways to reduce their risk. But they shouldn’t forget that their defaulted risk comes when a distressed homeowner can’t pay the monthly payment – not the closing costs. Instead, FHA can reduce the number of defaults by purging their list of unscrupulous lenders and having better internal controls. The proposal being considered by the FHA would have a negative and disproportional impact on California and underserved communities, and stymie California’s housing recovery.”