GOP proposing increase in FHA downpayments

WASHINGTON – May 25, 2011 – A Republican-led proposal circulated Monday would boost the downpayment requirement for mortgages backed by the Federal Housing Administration, a move that some industry experts said would shut potential homebuyers out of the market.

Borrowers who take out FHA-insured mortgages are permitted to put down as little as 3.5 percent, making those loans an especially attractive choice for first-time homebuyers. But as defaults rose during the housing market’s worst days, FHA’s cash reserves dwindled, creating concerns that taxpayers may have to come to the agency’s rescue.

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