FHA Stops Accepting New Requests for Home Loans
The Federal Housing Administration, its credit ceiling exhausted for the second time this year, stopped taking new mortgage applications Thursday while a dispute in Congress held up a bill to put it back in business.
The legislation to extend the FHA’s statutory authority, which lapsed June 5, and raise its credit ceiling was held up by a dispute over this month’s scheduled distribution of $80 million worth of federal urban development action grants.
Sens. Strom Thurmond (R-S.C.) and Charles Grassley (R-Iowa) had sought to delay the distribution of the grants until a new formula favoring cities in the South and West becomes law. But late Thursday afternoon, Grassley and Thurmond dropped their efforts to attach the formula to the FHA bill when it became clear that the House would not give way on the issue, a spokesman for the lawmakers said.
Thurmond had sought the changes because he “views the UDAG (urban development action grants) program as being unfair to many areas of the country. It funnels 70% of its entire budget into only 10 states,” spokesman Mark Goodin said.
House Strips Provision
A Senate version of a bill extending FHA’s authority, which was passed Wednesday night on a voice vote, prohibited the Department of Housing and Urban Development from distributing the grants until the new selection criteria are enacted into law.
The House stripped the UDAG provision Thursday when it passed a bill that extends the FHA’s statutory authority to Sept. 30 and raises the agency’s credit ceiling to $132 billion from $74.4 billion.
“I didn’t want that in the first place,” Sen. Jake Garn (R-Utah), chairman of the House Banking Committee, said of the UDAG restriction. “If those people in the Senate keep insisting on that, FHA will be on their backs, not mine.”
Garn noted that the new selection criteria, which favor cities in the South and West at the expense of the Northeast, are already contained in housing bills pending in Congress as well as in the supplemental appropriation measure approved by House-Senate conferees Wednesday night.
Garn said he was trying to “massage” a jurisdictional conflict with the Senate Appropriations Committee in order to include language that raises the FHA’s credit ceiling in the bill.
Applications Turned Away
Another urgent supplemental spending bill, which includes an FHA extender and credit boost, faces an almost certain veto by President Reagan.
The FHA reached the credit ceiling Wednesday, forcing it to stop taking applications for federally insured mortgages. The shutdown is forcing the agency each day to turn away 10,000 applications for the low-down-payment mortgages that have been underwritten at interest rates of 9.5%. FHA mortgages currently account for 20% of the market.
“All this is happening at the peak of a record spring and summer house-buying season and at a time of eight-year-low interest rates,” said Warren Lasko, executive vice president of the Mortgage Bankers Assn. of America. He said thousands of buyers who sought FHA loans two months ago, and who haven’t closed on their homes, will be forced to pay extra points to complete their purchases.
The FHA’s credit ceiling was reached in April, forcing it to suspend operations for several days before President Reagan signed a bill reviving it. The FHA’s’s statutory authority has run out six times since Oct. 1.