The House approved a bill Monday to substantially increase the government’s credit authority to offer prospective home buyers mortgages guaranteed by the Federal Housing Administration and the Veterans Administration.
The bill was approved by a voice vote after brief discussion, during which congressmen warned of a possible severe shortage of mortgage funds. A steady drop in interest rates has stimulated home sales and led homeowners to rush to refinance mortgages at lower rates.
The “unprecedented” demand for mortgages made it essential to lift the credit limits for government agencies, said Rep. Chalmers P. Wylie of Ohio, ranking Republican on the House Banking Committee and primary sponsor of the legislation.
The Government National Mortgage Assn., which packages FHA and VA loans into securities and guarantees them for sale to investors, had reached its limit of $65.3 billion for the current fiscal year. The House-passed bill would raise the ceiling to $100 billion. Without the Ginnie Mae backing for the securities, interest rates on FHA and VA mortgages would rise by as much as 1 percentage point, housing industry officials said.
The financing authority of the FHA, which will pay off a loan if the homeowner defaults, was rapidly reaching its lending ceiling of $57 billion. The limit would be raised to $95 billion under the bill approved Monday.
Uncertain Fate in Senate
The legislation awaits action in the Senate. Its fate there is uncertain because of opposition from the Reagan Administration, which wants to curb eligibility for FHA mortgages as a condition for raising the limit.
The Administration wants to restrict FHA mortgages to families with incomes of $40,000 a year or less. But the House bill had no such restrictions.
If the bill does not become law, Wylie warned, “as many as 225,000 home buyers each month will have their mortgages disrupted.” These buyers would be forced to pay more for their home loans or--if the FHA extension is not approved--many would be unable to get mortgages at all.
The FHA and VA mortgages require much smaller down payments than those under conventional financing and their financial requirements are less stringent.
For example, a borrower using an FHA or VA loan may be granted a mortgage even if he or she must make comparatively large monthly payments that consume a big portion of income. The government guarantee for these mortgages reassures the prospective lender.
The FHA and VA ensure that the mortgages will be repaid to the mortgage bankers and others who make loans. Ginnie Mae, in turn, provides backing for bundles of these mortgages sold as securities to other investors.
The selling of the securities gives the mortgage bankers new funds to make more loans.