FHA Hits Lending Limit, Halts All Applications for U.S.-Backed Home Loans
The Federal Housing Administration said Tuesday that it has reached its credit ceiling and notified lenders to stop taking applications for government-insured home mortgages.
FHA mortgages, which require a down payment as low as 5% of the price of a home, are commonly used by younger, first-time home buyers.
However, now that the agency has reached its lending limit, thousands of buyers will be frozen out of the housing market because they lack the income and savings to qualify for regular mortgages, said Bill Adkinson, a spokesman for the National Assn. of Realtors.
“The game’s over; we’re out of business,” said Silvio DeBartolomeis, acting head of the FHA. “This means that the public will have to rely on the private sector until Congress enacts legislation extending the credit ceiling.”
The House of Representatives recently passed a bill raising the lending authority for both the FHA and the Government National Mortgage Assn., known as Ginnie Mae. The Senate is preparing its own version of the legislation. But the FHA cannot resume guaranteeing loans until both houses of Congress approve the same bill and President Reagan signs it.
The fate of the legislation is uncertain because the Administration wants to add a provision limiting FHA eligibility to families with incomes of $40,000 a year or less. There are no income restrictions now.
The credit limit that the FHA has reached is $57.4 billion--the volume of mortgage loans that it will guarantee. The federal government insures the loans, promising to pay lenders if borrowers fail to make payments.
Because the government stands behind the loans, lenders are willing to provide financing for buyers who would fail to qualify otherwise.
The FHA’s power to insure mortgages also expired Tuesday.
The agency said it is not certain how many people will now be unable to get mortgage loans. However, the Mortgage Bankers Assn. of America estimated that the demand for FHA loans has risen to 10,000 applications daily. Potential buyers who have applied for FHA loans but not yet received approval will be unable to get their mortgages because of Tuesday’s suspension of business, an FHA spokesman said.
However, buyers with conditional commitments from the FHA will get their loans if an FHA case number has been assigned, the appraisal of the home’s value has been made and the lender has approved the loans.
The average FHA loan is for $58,000. The maximum for the insured loan is $90,000 in high-cost areas such as Los Angeles.
The boom in home sales, prompted by falling interest rates, exhausted the FHA lending capacity barely past the midway point of fiscal 1986.
The agency expected to receive 833,000 applications for single-family home loans during the year ending Sept. 30, but through April 15 it had already received 805,000.
The recent sharp rise in the demand for home loans--for refinancing of old mortgages at lower rates as well as for new purchases--has put great pressure on the government’s credit agencies.
“Homeowners and home buyers stampeded lenders to take advantage of the lowest mortgage rates in more than seven years,” said Warren Lasko, executive vice president of the Mortgage Bankers Assn.
Because of the near-frantic demand, Ginnie Mae, which backs groups of FHA and Veterans Administration mortgages sold to investors, reached its credit limit earlier this month.
Without the Ginnie Mae backing for these mortgages, the cost of financing for home buyers using FHA and VA mortgages would increase by 1% of the value of the loan, housing industry experts say.
Industry Opposes Changes
The industry--realtors, home builders and mortgage lenders--wants the FHA credit limit lifted but strongly opposes any changes in the rules, such as the proposed $40,000-a-year income ceiling.
The situation is “very distressing to us,” Adkinson of the National Assn. of Realtors said.
“We are in the prime home-buying period of any year--the spring and early summer months,” he said.
“With interest rates having fallen to 9% or 9.5% for fixed-rate loans, we have hundreds of thousands of buyers and sellers ready to make transactions,” he added.