FHA Regains Top Role as Loan Insurer

How the housing finance wheel doth turn around and around.

Only a few years ago, there was speculation that this nation no longer needed its FHA insurance program that helped millions to become single-family homeowners. Then the FHA program marked its 50th anniversary last year--at a time when ARM (adjustable rate mortgages) and conventional financing were taking the mortgage bull by its horns.

Now comes word that federal housing officials are concerned that the 1985 upsurge in FHA mortgage financing for single-family houses could bring the dollar volume close to the $50.9-billion limit placed on commitments for all FHA programs during the current fiscal year ending Sept. 30.

Applications for FHA loans soared above the million mark on a seasonally adjusted rate, of course, in July. And applications in that same month totaled 93,260, up more than 16% over June. The biggest increase (16%) was for financing of existing homes although new-home construction with FHA financing was up more than 6%. The Mortgage Bankers Assn. reported that the FHA single-family home activity is far ahead of what the Department of Housing and Urban Development anticipated for the current federal fiscal year.

This resurgence of home buyer interest in FHA financing, which is expected to increase even more with the advent of tougher FNMA conventional mortgage eligibility rules this fall, makes it almost mandatory for Congress to rethink the limit on FHA home financing.

“If the nation likes the FHA program, which is as all-American as Social Security or IRA, then our government should make sure that this program will not be hampered by any arbitrary ceiling,” area builder Robert Libson said.

Meanwhile, the increase in VA home financing was at a slower pace. Applications for VA-guaranteed mortgages hit 23,742 in July, and the number of loans actually closed hit 16,290. Those are VA highs for fiscal 1985, but a VA official said they mainly reflect for a seasonal peak.

Newly issued regulations from IRS provide that mortgage pass-through certificates are now eligible for exemption from the 30% tax that can apply to investment interest paid to foreign investors. The stipulated exemption, which had been challenged earlier this year, is expected to expand access by the U.S. mortgage credit industry to more capital from overseas markets and thus open up new sources of investment funds for U.S. residential housing.

Also recently effective is an Internal Revenue Service requirement that lending institutions inform IRS about mortgage interest payments received from individuals. The idea is to help IRS to better determine the accuracy of mortgage interest deductions claimed by taxpayers and also the accurate amount of taxable interest income received by lenders. Only interest over $600 must be reported.

On another mortgage matter, Senate Banking Committee chairman Jake Garn (R-Utah) and House Banking Committee ranking minority member Chalmers Wylie (R-Ohio) asked the Federal Reserve Board to delay its proposed changes in disclosure rules requiring lender presentation of a detailed “worst case” scenario on ARM loans to the consumer.

The lawmakers reflected the view of the mortgage and housing industries that sufficient and significant changes have been made by voluntary self-regulation of the ARM activity to provide more borrower protection.

SHORT TAKES: HUD is expected to set aside its traditional minimum property standards for single houses in favor of codes of the Council of American Building Officials and the NFPA Electrical Code to please builders and to streamline the code-conformance process. . . . To aid an ailing U.S. timber industry, Congress is considering legislation to put stiff duty payments on imported Canadian lumber. This could make new housing more expensive. . . . Plumbing code changes, such as dropping three-inch vent pipes in roofs (changing to side vents) are being proposed by NAHB Research.