Borrowers Pay to Refill FHA's Pot

This morning, the Federal Housing Administration officially announced long-promised news: the agency is moving to shore up its rapidly eroding insurance fund. And here's the deal: you the borrower will be paying for it.

Starting this spring, borrowers who take out FHA-insured mortgages will pay an up-front fee of 2.25 percent of the total amount borrowed, in an addition to annual premiums. These fees replenish the FHA insurance fund, which pays lenders back in case of default. The insurance is essential because FHA loans allow borrowers to take on a mortgage as big as 97.5 percent of a home's value, far more than non-FHA lenders will permit, increasing the risk that borrowers will eventually default on their mortgages.

It may sound crazy to be pushing low down payments when they're a big reason why so many borrowers are underwater and defaulting on their mortgages. But FHA is committed to keeping the down payment at a 3.5 percent minimum for borrowers with credit scores of 580 or higher, Commissioner David Stevens said on a conference call with reporters today. (Borrowers with scores below that now have to put 10 percent down.)

Really, FHA has no choice.