Currently, Federal Housing Administration (FHA) loans comprise more than 30% of the entire home-loan market. But as some of those insured loans have defaulted, the FHA loan-guarantee fund has slipped below the Congressionally mandated 2% level. As a result, some lawmakers are suggesting that FHA loans need to be more expensive to obtain. A House bill, the FHA Taxpayer Protection Act of 2009, would increase the minimum down payment required to obtain an FHA loan to 5% from 3.5%. That, sponsor Rep. Scott Garrett, R, N.J., believes, would make borrowers more committed to maintaining their mortgages. Almost 90% of FHA purchase loans issued between January and August 2009 had loan-to-value (LTV) ratios of 96 or higher, according to written testimony from Robert Story, chairman of the Mortgage Bankers Association. That amounts to a very small commitment on the parts of buyers. "We have made the decision to exercise our authority to increase the up-front cash that a borrower has to bring to the table in an FHA-backed loan -- to make sure that FHA borrowers have more 'skin in the game' and a stronger equity position in their loans," said Housing and Urban Development secretary Shaun Donovan. Still, he added, "FHA is not 'the next subprime' as some have suggested."
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