George S. May Business Blog

David Stevens, head of FHA, warns against raising down payment requirements

David Stevens, head of the Federal Housing Administration, advised a panel at the Mortgage Bankers Association annual convention that raising the down payment requirements or taking similar steps to limit the pool of eligible buyers for FHA-backed loans would hamstring a fragile housing recovery.

 “If it weren’t for this program, assuming that risk is being protected, this would forestall recovery of key metropolitan markets across the nation,” said David Stevens, the FHA commissioner, during a panel session at the Mortgage Bankers Association annual convention in San Diego on Monday.

Earlier this month, Rep. Scott Garrett (R., N.J.) introduced a measure in Congress that would require minimum down payments of 5%, up from 3.5%, on loans backed by the FHA. Still, Stevens warned against making credit standards tighter as signs are showing that housing is beginning to stabilize in certain housing markets. “When I see members of Congress move a bill out that says raise it to 5%…I get very concerned,” he said. “It isn’t the down payment on its own that causes a default.”

Overall, Mr. Stevens’ standpoint was said to be well received, drawing applause from mortgage bankers, brokers and other industry personnel during the trade association’s annual meeting.

There are raising concerns surrounding the FHA in recent months, as the agency predicted that capital reserves would drop below he federally mandated levels. Critics have predicted that should the housing slump be prolonged, the FHA may be required to ask Congress for a bailout. David Stevens responded that there is no immediate risk.

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