The Reagan Administration’s dramatic plan to sell the Federal Housing Administration to a private buyer, part of the Office of Management and Budget’s package of proposals to reduce federal spending, has virtually no chance to get through Congress, housing experts agree.
But, even in failure, the proposal may raise the cost of financing a home for the foreseeable future.
The idea was widely denounced as soon as it surfaced last weekend as one of the options to be placed before President Reagan. The housing and mortgage banking industries immediately announced a full-decibel lobbying effort to defeat the proposal in Congress, which must approve the dismantling of a 50-year-old program that has long enjoyed bipartisan support.
Officials of the Mortgage Bankers Assn. of America fear the idea is not so much a trial balloon as a stalking horse for a new round of increased user fees and costs that Reagan’s OMB wants to impose on federal mortgage programs.
“It makes no sense at all,” said Ronald F. Poe, head of the Mortgage Bankers Assn. “It’s a ridiculous trial balloon, a ploy by the Administration to camouflage other attacks on federal housing programs.”
The key targets, say Poe and his associates, are the FHA itself--which has insured more than 50 million homeowners--and the main secondary mortgage pools: the Government National Mortgage Assn. (Ginnie Mae), the Federal National Mortgage Assn. (Fannie Mae) and the Federal Home Loan Mortgage Corp. (Freddie Mac).
It would not be the first time. Late in 1983, the Administration increased the cost of FHA-insured mortgages by requiring that the premium imposed on the homeowner for FHA insurance be paid up front instead of over the life of the mortgage. Beginning next year, the premium will be increased from 3.8% of the loan amount to 5%.
Now, the mortgage bankers say, the Administration plans to impose sharply higher user fees for services of Ginnie Mae, which buys mortgages insured by the FHA and the Veterans Administration, and its sister facilities. And for the first time, they say, the Administration would impose a means test on recipients of FHA mortgage insurance and limit eligibility to families with annual incomes of less than $40,000.
“These are devastating proposals,” said Warren Lasko, executive vice president of the bankers’ group and formerly a high official of both Ginnie Mae and Fannie Mae. “It seems they want to gut the FHA before they sell it.”
Under the OMB draft proposal to sell the FHA, which Administration officials have refused publicly to confirm but have pointedly declined to deny, the Housing and Urban Development Department, the home agency of the FHA, would be authorized to sell all of its assets and liabilities “as a single package” to private bidders by the end of 1989. But that is easier proposed than done.
$2 Billion in Reserves
The FHA’s insurance program runs comfortably in the black, piling up a surplus of more than $700 million in fiscal 1985 and currently maintaining slightly more than $2 billion in reserves to cover claims against its mortgage insurance commitments. Other assets include some $1.2 billion in private houses and apartment buildings acquired in foreclosures.
No private mortgage insurer or consortium is likely to step in with a $3-billion bid to take over a mortgage insurance program that operates successfully precisely because the federal government has stood behind the program with its full faith and credit. The program works, said Poe, “because the U.S. government stands behind FHA through insurance that protects the lender. Remove that, and you have removed the major incentive for lenders to use the program.”
Without federal backing, the insurance commitments held by the program for some $165 billion of mortgages would overwhelm the capacity of any private sector operator, housing specialists say.
And it is because of the implicit backing of the government that the FHA over the years has been an engine of housing growth in the United States, enabling first-time buyers to get a mortgage in the private market with as little as 3% down.
Required by Lenders
The average loan underwritten by the FHA has risen with housing costs to $58,000. Under present rules, the ceiling on FHA-insured mortgages is $67,500 except in such high-cost markets as Los Angeles, Washington, New York, Chicago and Boston, where the ceiling is as high as $90,000.
Most homeowners with FHA insurance joined the program because lenders required it as a condition for getting a loan, a HUD official noted. For the typical applicant for FHA insurance, with perhaps $5,000 to put down on a $60,000 house, a bank or savings and loan association decides that a mortgage is an unacceptably bad risk without government insurance.
Applications for FHA mortgages, which totaled 525,127 in 1984, are running at an annual rate of more than 1 million this year, HUD officials say. Under current budget limits, the FHA cannot make new insurance commitments worth more than $50.9 billion in any year, a ceiling that would permit a maximum of about 750,000 new mortgages.
Historically, the FHA has insured about half of all first-time homeowners underwritten 11% of all home mortgages in the United States. That ratio has risen to about 15% of all new home mortgages in the last two years, HUD officials say, and at present it is probably about 20%.
Over the years the foreclosure rate has been very small, at present 0.76%, according to HUD. Of all FHA-insured mortgages currently in force, about 2% are delinquent by more than 90 days.
MORTGAGE ACTIVITY AT THE FHA
1980 556,346 1981 408,129 1982 282,038 1983 551,795 1984 441,747