Three congresscritters — Karen Bass (D-Calif.), Robert J. Dold (R-Ill.), and Luis Gutierrez (D-Ill.) — have introduced a bill that would reduce the mortgage insurance costs for first-time buyers looking for an FHA loan.

On June 11, FHA’s mortgage insurance premium go up again; it’s currently 1.75% of the amount borrowed (due at closing), and on the 11th jumbo loans — those above $625K — will go to 2.0%.

The good thing about FHA loans, especially for first-time (read: small saving account) buyers is that they only require a 3.5% down payment. The downside is that you have to pay insurance on the loan until you build up equity.

FHA protects itself with those insurance premiums, but the result is that what was supposed to be über-affordable is a lot more expensive.

Enter H.R. 5884, which wants to “establish a 1-year pilot program to reduce up-front premiums on FHA mortgage insurance for first-time homebuyers who complete a homeownership counseling program and thereby help to reduce default rates on residential mortgages.”

In short: First time buyer, take a course, get a lower down payment. We’ll keep you updated.

Update/rebuttal: Interesting post over at Dr. Housing Bubble arguing that the FHA shouldn’t be aiming at the higher-end market — that’s not its mission.

How can anyone look at using a FHA insured loan above say $400,000 and say it is to encourage affordable housing?  The median US home price is roughly $170,000 so they should peg it to that.  Instead we have these products encouraging maximum leverage and default rates are soaring.