Budget Dismisses Default Worries on Zero-Down FHA Loans.

Washington -- The Bush administration is sticking to its guns and once again it will push for a federally insured zero-downpayment program, despite resistance in Congress and concerns about high default rates and claims.

The president's budget proposal for fiscal year 2006 calls on Congress to approve a Federal Housing Administration zero-down program that would allow first-time homebuyers with strong credit records to finance 100% of the home purchase and closing costs.

The administration also is asking Congress to take a second look at a FHA "payment incentive" program that would allow subprime borrowers (who have improved their credit scores) to refinance into a cheaper FHA-insured loan.

These FHA mortgage programs would "remove two large barriers to homeownership - downpayment and impaired credit," according to the FY 2006 budget proposal the president sent to Congress last month.

Legislation to create the FHA zero-down program was approved by a House committee last year. But the bill was stopped in its tracks when the Congressional Budget Office estimated the new program would incur $125 million in losses annually.

The president's budget estimates the zero-down program would generate $231 million in revenue annually and help over 200,000 families purchase their first home.

In a recent speech, Department of Housing and Urban Development secretary Alfonso Jackson suggested the FHA could design a zero-down program with a low default rate.