Reporting from Washington - For several years, the Federal Housing Administration has been the go-to financing resource for cash-strapped home buyers who can't come up with a big down payment. It has zoomed from barely a 3% market share to nearly 30% of home purchase loans. But now, FHA-insured mortgages could be on the verge of becoming more expensive and tougher to obtain.

In the wake of an independent actuarial study that found the FHA's insurance fund reserves far below the congressionally mandated minimum, the agency confirms that it is exploring ways to pump up its reserves -- including raising insurance premiums, minimum down payments and a variety of other unspecified moves.

How might these changes affect home buyers and refinancers? FHA officials won't discuss precisely what they're looking at. But here's an overview of some of the possibilities:

* Higher down payments. FHA's current minimum cash down payment is 3.5%. On a $200,000 house, a buyer can bring just $7,000 to the table, aside from closing costs.

Critics say 3.5% does not force buyers to have enough "skin in the game" to discourage them from missing payments or risking foreclosure. Rep. Scott Garrett (R-N.J.) introduced legislation last month requiring a minimum 5% down payment for future FHA loans. Ed Pinto, Fannie Mae's chief credit officer in the 1980s and now a mortgage industry consultant, says FHA needs to move to a 10% minimum.

But many lenders and mortgage brokers contend that raising the limit could scuttle FHA's core purpose -- serving consumers of modest means. Jeff Lipes of Family Choice Mortgage Corp. near Hartford, Conn., said a move to a 10% minimum "would effectively eliminate FHA as an option for first-time buyers." A 5% standard would reduce volume, he said, but not exclude as many currently eligible borrowers.

* Higher mortgage insurance premiums. FHA charges an upfront mortgage insurance premium of 1.75% of the loan amount. Most borrowers roll that into their loan and finance it. The FHA also charges an annual premium, paid in monthly installments, of either 0.5% or 0.55%, depending on the down payment. To rebuild reserves, FHA could tweak one or both premiums to yield higher revenue. It could raise the upfront premium as high as the statutory maximum of 2.25%. It could also raise the annual fee, but the total premium could not exceed 3% under current congressional limits.

Mortgage industry officials say raising premiums would have a gentler effect on borrowers. On a $200,000 loan, Lipes said, an increase in the upfront premium to 2% -- and a move to 0.6% on the annual -- would raise a monthly payment by $10 at today's interest rates.

* Cutting home-seller "concessions" to borrowers' loan costs. One of the big attractions of FHA financing has been the agency's liberal allowance for seller contributions to borrowers to offset settlement and loan-related fees. The current FHA limit is 6% of the house price, which critics believe to be excessive. They say the policy allows financially marginal borrowers to buy houses they shouldn't, raising FHA's exposure to losses. Pinto wants Congress to order FHA to reduce maximum concessions to 2%.

* Toughening credit standards. In the mortgage market, FHA is by far the most lenient and flexible player when it comes to evaluating applicants' creditworthiness. It does not have a minimum credit score, though it permits lenders to impose their own FICO score minimums. FHA also has been far more tolerant of credit history peccadilloes than Fannie Mae or Freddie Mac.

But critics say underwriting generosity can lead to higher delinquencies, foreclosures and losses. Many mortgage market participants would prefer to see FHA move to the approach used by private insurers -- risk-based pricing.

Paul Skeens of Colonial Mortgage Group in Waldorf, Md., says FHA should calibrate premiums to a tiered system of credit scores and down payment amounts, charging more for borrowers with low down payments and low scores, and less for those with higher cash in the deal and better scores.

kenharney@earthlink.net

Distributed by the Washington Post Writers Group.