A Federal Housing Administration proposal to lower the loan-to-value ratio requirements for government-backed loans valued above $625,500 has gained the support of the Mortgage Bankers Association.
The plan would essentially lower the required loan-to-value ratio from 96.5% to 95% for any FHA-insured loan valued above that threshold.
The MBA’s public policy team sent a comment letter to HUD praising the plan as a way to refocus FHA on its core mission of serving low- and moderate-income borrowers, while making the private market competitive again by shrinking the FHA's footprint.
As a consequence, the proposal would raise the minimum downpayment requirement from 3.5% to 5% on FHA-insured mortgages valued above the $625,500 benchmark, the MBA said.
Stephen O'Connor, senior vice president of public policy and industry relations with MBA, sent a letter to HUD supporting the plan, despite the higher downpayments that could result.
"This current proposal will have a minimal impact on the overall United States housing market," wrote O'Connor in a letter. "From January 1, 2012 through December 31, 2012, applications for government-insured loans over $625,500 accounted for just 0.75 percent of total applications nationwide."
Still, some markets do lean more heavily on FHA-insured loans for homes valued above $625,500.
These markets include Washington D.C., where 11.17% of 2012 applications for FHA-insured mortgages were for loans above the $625,500-threshold, and Hawaii where 10.08% of government loan applications fit into this category.