The organization that stands behind mortgage-backed securities needs to boost its guarantee authority by more than 50% to keep up with the rush to refinance home loans, Housing Secretary Samuel R. Pierce Jr. said Wednesday.
Increasing the Government National Mortgage Assn.'s $65.3-billion guarantee authority, which expired last Friday, to $100 billion should be sufficient to handle the surging housing market through the end of the fiscal year--Sept. 30--Pierce told a Senate subcommittee.
Industry officials say the rush to refinance home mortgages at lower rates caused the unprecedented exhaustion of the government-chartered corporation’s legislative authority as guarantor of securities backed by mortgages insured by the Federal Housing Administration and Veterans Administration.
Unless Congress acts to raise the authority by month’s end, “we shut down,” said Silvio DeBartolomeis, acting chief of the FHA, which insures about 15% of home mortgages.
By month’s end, the surge in home buying and refinancing is also expected to exhaust the FHA’s $57.2-billion authority to insure home mortgages. The agency’s insuring authority must be raised to $95 billion to handle the heavy volume for the rest of the fiscal year, Pierce told a Senate Appropriations subcommittee.
The Housing and Urban Development Department also proposes eliminating FHA mortgages for vacation homes and single-family houses purchased as speculative investment properties.
The FHA wants to “target first-time home buyers not being served by the private market,” Pierce said.
But Sen. Jake Garn (R-Utah), the subcommittee’s chairman, predicted that “you’re not going to receive a lot of favorable treatment” in Congress for the proposal.
“When we finally got a surge (in the housing market), OMB wants to stifle it . . . by not having adequate loan guarantees. That doesn’t make much sense to me when we are trying to put more people into housing,” Garn said.