It's enough to send a chill up your spine. After insuring billions in mortgages approved without credit scoring standards, the FHA was confronted with a proposal not for the faint of heart. Possibly acknowledging Timmy G's vision of the restrained American consumer of the future, Rep. Scott Garrett called for an increase in the down payment for FHA backed loans from 3.5% to 5%. Stunned at the suggestion that more money upfront might help counter the successes seen in the zero-down era, the head of the FHA, David Stevens, put any fears of a higher mortgage standards world to rest.
But Mr. Stevens warned against "jumping to conclusions" and making credit standards tighter just as some signs show 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."
Quite right. You need somebody willing to take on the risk of default, whether they know it or not. Like the taxpayer.
FHA Head Rejects Calls for Higher Down Payments [WSJ].