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FHA also appears to have tried to lead the GSEs. In 1999—just before the
AH goals for Fannie and Freddie were to be raised—FHA almost doubled its
originations of loans with LTVs equal to or greater than 97 percent, going from 22.9
141
percent in 1998 to 43.84 percent in 1999. It also off ered additional concessions on
underwriting standards in order to attract subprime business. Th e following is from
142
a Quicken ad in January 2000 (emphasis in the original), which is likely to have
been based on an FHA program as it existed in 1999:
Borrowers can purchase with a minimum down payment. Without FHA insurance,
many families can’t aff ord the homes they want because down payments are a major
roadblock. FHA down payments range from 1.25% to 3% of the sale price and are
signifi cantly lower than the minimum that many lenders require for conventional or
sub-prime loans.
With FHA loans, borrowers need as little as 3% of the “total funds” required. In
addition to the funds needed for the down payment, borrowers also have to pay
closing costs, prepaid fees for insurance and interest, as well as escrow fees which
include mortgage insurance, hazard insurance, and months worth of property taxes.
A FHA-insured home loan can be structured so borrowers don’t pay more than 3% of
the total out-of-pocket funds, including the down payment.
Th e combined total of out-of-pocket funds can be a gift or loan from family
members. FHA allows homebuyers to use gift s from family members and non-profi t
groups to cover their down payment and additional closing costs and fees. In fact,
even a 100% gift or a personal loan from a relative is acceptable.
FHA’s credit requirements are fl exible. Compared to credit requirements established
by many lenders for other types of home loans, FHA focuses only on a borrower’s last
12-24 month credit history. In addition, there is no minimum FICO score - mortgage
bankers look at each application on a case-by-case basis. It is also perfectly acceptable
for people with NO established credit to receive a loan with this program.
FHA permits borrowers to have a higher debt-to-income ratio than most insurers
typically allow. Conventional home loans allow borrowers to have 36% of their gross
income attributed to their new monthly mortgage payment combined with existing
debt. FHA program allows borrowers to carry 41%, and in some circumstances, even
more.
It is important to remember that 1999 is the year that HUD was planning a
big step-up in the AH goals for the GSEs—from 42 percent LMI to 50 percent, with
even larger percentage increases in the special aff ordable category that would be most
competitive with FHA. Th e last major increase in the percent of FHA’s loans with
LTVs equal to or greater than 97 percent had occurred in 1991, the year before the
GSE Act imposed the AH goals on Fannie and Freddie, and in eff ect directed them
to consider downpayments of 5 percent or less. In 1991, FHA’s percentage of loans

141 Integrated Financial Engineering, “Actuarial Review of the Federal Housing Administration Mutual
Mortgage Insurance Fund (Excluding HECMs) for Fiscal Year 2009,” prepared for U.S. Department of
Housing and Urban Development, November 6, 2009, p.42.
142 Quicken press release, “Quicken Loans First To Off er FHA Home Mortgages Nationally On Th e
Internet With HUD´s approval, Intuit expands home ownership nationwide, off ering consumers
widest variety of home loan options”, January 20, 2000, http://web.intuit.com/about_intuit/press_
releases/2000/01-20.html.