Despite some negative political and ideological maneuvering, the 52-year-old Federal Housing Administration home loan insurance program is expected to survive--and to continue helping moderate-income Americans become homeowners.
Speaking as head of a Department of Housing and Urban Development task force assigned to study the future of FHA, Glenn R. Wilson Jr., told a recent press seminar that he is convinced of the need for continuation of the FHA mortgage insurance program that has helped millions of American families to get high ratio loans for modest down payments. Wilson also noted the value of FHA’s financing role in inner-city housing.
A resident of Grand Island, Neb., and now president of the Government National Mortgage Assn. (like FHA also now a part of HUD), Wilson counted himself among those in the Reagan Administration who would like to see private mortgage insurance increase its role.
On the other hand, panelist Stephen Doehler, representing private mortgage insurers, said his constituency wants FHA to continue its basic role despite some overlaps.
Private mortgage insurance is not always available in all parts of the nation. Wilson noted that his hometown in Nebraska needs FHA financing because private mortgage insurers “backed out of the market” during an economic downturn.
Builder David Smith, speaking as president of the National Assn. of Home Builders, emphasized that the FHA mortgage insurance program is “needed for hard times.”
Smith also said NAHB feels confident that it has enough clout on Capitol Hill to ensure continuation of the basic FHA mortgage insurance that can be a last resort for potential first-time buyers with good credit prospects but only moderate incomes and small savings.
Former FHA commissioner (and former builder) Larry Simons contended that the real challenge to private mortgage insurers is to do a better job than FHA in serving the needs of moderate-income Americans wanting to become homeowners.
A Democrat and an attorney here, Simons asked, “Will the private sector take the risks taken by the United States (meaning FHA)?” Simons suggested that Congress might be willing to limit FHA insurance to borrowers with incomes of up to $40,000.
The Mortgage Bankers Assn. and the National Assn. of Realtors also favor the retention of the basic FHA program. Because the trade associations backing the preservation of FHA are often major supporters of the Reagan Administration, it is considered likely that any changes made in the FHA mortgage program in this decade will be relatively minor.
But Wilson, as well as other panelist, expressed dismay that increasing fraud has been discovered in loans that are taken over by investors from home buyers. Wilson noted a “major tendency” for abuse when FHA insurance is granted on investor loans. Wilson said FHA statistics show that 12% of its loans were made to investors, while 30% of those investor loans accounted for all defaults, fraud and abuse of the overall FHA programs.
HUD wants to eliminate loans to investors and to persons seeking financing for second homes, while also imposing a $40,000 ceiling on the income of potential FHA borrowers.
Builder-developer Angelo Puglisi, who does not use FHA financing, said later that the $40,000 income limit sounds reasonable for most parts of the nation but might be too low for some two-income, young households in high-cost areas such as Washington, New York City and Southern California.
Currently, FHA insures mortgages up to $67,000, or 95% of the median home sale price in an area. In high-cost areas the loan amount can be as much as $90,000 but there is no income limitation.
Puglisi added that the true role of the government in housing should be to take reasonable risks that help produce broader home ownership and to be innovative in establishing housing industry minimum requirements and insurance for manufactured (modular) homes, nursing homes and retirement centers.
Considering the respected FHA tradition of over half a century and its ability to do more than the private mortgage insurance sector, it seems likely to most housing-savvy leaders here that the government will continue the essentials of FHA to bolster the openly stated HUD goal of increased homeownership, equal access to housing and to provide cost-effective housing assistance for those in genuine need.