FHA Loans: Return to 0% Down

Businesse Week reports:

The days of home buying with little or no money down may be back—this time thanks to Uncle Sam.

Blamed for contributing to the housing bubble, zero-down-payment loans largely vanished when the market crashed and Congress blocked seller financing for government-backed loans. Now the federal government will be forking over cash at closing.

Buyers who haven't owned a home for three years or longer are eligible for an $8,000 tax credit, thanks to a provision in this winter's stimulus package. Now, under a little-noticed program announced May 29, the Federal Housing Administration will steer the funds to cover closing costs directly—in some cases even offsetting the 3.5% minimum down payment FHA loans require. That's enough to cover most or all of the down payment and fees for homes up to the U.S. median price, now about $169,000.

When the FHA "asks" to be bailed out remember this.In the free market, there's no 0% down mortgages because lenders want collateral to hedge against risk. In the free market, there's no FHA. What could be more irresponsible than this? We assure you that Barney Frank and Chris Dodd really don't care.