Example

A $100,00 loan taken out in 1993 in a 5 percent down transaction would have the borrower pay $41.66 per month additional insurance premium to the FHA for thirty years

Although FHA managers maintain that their reserves, plus access to the U.S. Treasury, would be adequate to survive the current crisis, the new plan for higher costs should build up the reserve account and offset increased buyer defaults in the future. In an effort to limit its vulnerability, the FHA has discontinued insuring loans on vacation or second homes; or non-owner-occupied properties.

It is interesting to note that the FHA program was originally designed to help persons with low down payments qualify for loans with which to purchase homes and other real estate. By raising costs and down payment requirements, it may become comparatively less expensive to secure a conventional loan and the FHA program may see its original purpose disappear.

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