Administration Housing Policy Flayed : NAR Speaker Sees Harm in Proposal to Privatize Agencies

Housing should be as high a priority item with the Reagan Administration as the war on drugs, international relations and attempts to reduce the budget deficit.

This was the contention of one speaker at the 79th annual convention here last week of the National Assn. of Realtors.

Thomas B. French Jr., president-elect of the Mortgage Bankers Assn. (MBA), was one of several speakers who deplored the announced efforts by the Administration to sell off the Federal Housing Administration (FHA) and other agencies to the private sector.

At a news conference, French said that by allowing FHA programs to lapse seven times this year, the Administration is sending a signal to everyone that government support for middle-income housing is in danger.

Endangered Programs

“Reagan could have stepped in and supported the housing policy but he didn’t do a thing,” French asserted. Other endangered federal programs include the Veterans Administration, Federal National Mortgage Assn. (Fannie Mae), Federal Home Loan Mortgage Corp. (Freddie Mac) and the Government National Mortgage Assn. (Ginnie Mae), he added.

Suggestions that federal housing programs should be reduced or eliminated couldn’t come at a worse time, French said. “The rate of home ownership is on the decline for the first time in recorded history in America,” he said.

“It dropped from 65.5% in 1980 to 63.5% in 1985. Another report indicates that only 50% of the people under the age of 30 will ever own a home of their own.”

The assault on the programs comes from a lack of a positive housing policy, French charged, and is a continuation of the Administration’s efforts--represented by the Office of Management and Budget (OMB)--to get the federal government out of the business of providing assistance to the home buyer through loan guarantees.

Caused ‘General Alarm’

The struggle between the housing finance industry and the OMB over federal housing programs has heated up considerably in the last year, causing “genuine alarm” to French’s association as well as the 750,000-member National Assn. of Realtors (NAR) and the residential builders represented by the National Assn. of Home Builders (NAHB), he said.

He told members of the news media that all three organizations--the NAR, the MBA and the NAHB--are working separately and jointly to formulate a “positive national housing policy.”

Specific examples of Administration moves contrary to housing cited by French include:

Administration Moves

--Substantial budget and staffing reductions for the Department of Housing and Urban Development, including delays in filling top-level vacancies at other agencies.

--No action in making the FHA a permanent part of the federal government.

--The continuing pressure to attach user fees to government programs, with the ostensible goal of limiting their use.

--Proposals to prohibit closing costs from being financed as part of the mortgage on FHA loans, resulting in an increase in the up-front cost of the house and excluding more individuals and families from the program.

Congressman’s Support

French received support at the convention, held at the New York Hilton, from Rep. Chalmers Wylie (R-Ohio), who told the 15,000 realtors and guests that he is opposed to “lessening the role of the FHA as an insurer of home mortgages . . . it is important to leave the FHA the way it is, because of service it provides to low- and moderate-income home buyers.”

Wylie is the ranking Republican on the House Banking Committee.

Two other speakers, John Weicher, chief economist for the American Enterprise Institute, and Dennis J. Jacobe, director of research for the U. S. League of Savings Institutions, dissented from the alarmist view of the privatization issue.

Both agreed that--although the FHA played a key role in developing low down payments, wholly amortizing home mortgages in the mid-1930s--its role now should be reduced or limited and private mortgage insurers and lending institutions should pick up more of the market for moderate income housing finance.

Lenders Crowded Out

“I don’t advocate doing away with FHA, Fannie Mae or Freddie Mac,” Jacobe said. “I just want the private market to be allowed to compete more equitably with these agencies.”

Speaking at a news conference before he left New York to attend his organization’s annual convention in San Francisco, Jacobe said that private sector portfolio lenders--including those in his organization--are being crowded out of the market. The U. S. League of Savings Institutions wants to “refocus” a secondary market represented by Fannie Mae and Freddie Mac.

When there is no money in the private sector for housing financing, those agencies should step in to provide funds for mortgages, he suggested. “This certainly isn’t the case now: There is plenty of private sector money looking for quality assets. Our organization includes portfolio lenders, those in the secondary mortgage market and firms that are essentially mortgage bankers.”

Weicher said that the FHA’s role in the primary and secondary mortgage market has been declining in recent years. The private market is now able to provide such services for borrowers--a view strongly contested by the MBA’s French who believes that the private market is unwilling or unable to finance all the buyers with 5% or 10% down payments who are in the market.

Want Widest Choice

Weicher said that many of the FHA loans today are going to moderate- to high-income borrowers who could be handled by conventional lenders. He added that, while privatization is not likely to take place soon, the question is likely to come up in the future.

This view is one that horrifies real estate brokers who want home buyers to have the widest possible choice of home finance plans.

Clark E. Wallace, the Moraga, Calif. realtor who headed the NAR this year, predicted a decline of more than 20% in multifamily housing construction next year compared with this year, along with a 6% drop in single-family construction. He added that consumer spending likely would fall off next year as people pay off their credit card and other bills. Consumer interest payments will no longer be deductible starting next year.

Wallace was succeeded as president of the realtor group by Bill Moore of Denver.