Buried in last week's convention hoopla was a provocative proposal by President Clinton that would dramatically expand the reach of the Department of Housing and Urban Development's FHA program.
The plan, which would raise an additional $200 million in insurance premiums over six years, has already drawn fire from private mortgage insurers. It is also opposed by Congressional Republicans who want to scale back the FHA program. But mortgage bankers, who make most FHA loans, love it.
Right now, the two government-sponsored enterprises can buy loans up to $207,000, while the FHA ceiling in high-cost areas is 75% of that level, or $155,250. The higher limit would allow the FHA program to back loans to relatively affluent households in many parts of the country and make homebuying easier for people lacking in funds for down payments. Between 35,000 and 100,000 additional homeowners could use the FHA program under the new limits, according to government estimates.
Last week, all sides lined up right away for a potential fight.
"We have long believed that FHA should be targeted to lower-income first-time homebuyers," said Ellen Schweppe, director of communications for the Mortgage Insurance Companies of America, the insurers' trade group.
"People in higher-income levels have numerous private options available to them," Ms. Schweppe said.
From Capitol Hill, Rep. Rick Lazio, R-N.Y., whose House Banking subcommittee oversees the FHA program, blasted the "blatantly political proposal" as potentially jeopardizing the FHA's insurance fund. Higher loan limits would mean the FHA program would insure large-balance, low-down- payment loans, which are riskier than small loans with the same loan-to- value ratios, Mr. Lazio said.
On the other side of the argument, the administration, backed by mortgage bankers, said the proposal would help more Americans become homebuyers sooner and for larger homes.
"If people make a decision to become homeowners sooner by getting a lower-down-payment mortgage rather than trying to save," the national homeownership rate will rise, said Sarah Rosen, special assistant to the assistant secretarMr. Clinton has proposed that the department do away with loan limits geared to local home prices. In its place, he would like a single limit that would allow the program to back loans as large as those that can be bought by Fannie Mae and Freddie Mac.
y for housing. Mr. Clinton has pledged to help a record proportion of the population become homeowners by the end of 2000.
To the charge that the FHA program competes unfairly with private insurers, Ms. Rosen stoutly disagreed. She said consumers who can get private insurance would naturally choose it when they can, because it is cheaper than government insurance.
"Those who come to FHA, come because they can't qualify in the conventional market," she said.
Should the President's proposal ever make it to Congress, it might well open another front in the war against the Depression-era government housing program. Would Fannie Mae, formally the Federal National Mortgage Association, and Freddie Mac, the Federal Home Loan Mortgage Corp., fight a strong FHA program to ward off more competion in the low-income and central-city markets they are being pressed to serve? These are also FHA program's strongest markets.
Warren Lasko, executive vice president of the Mortgage Bankers Association, maintained last week that an expanded FHA would not hurt Fannie or Freddie, and said he hoped they would, at least, maintain a neutral stance on the issue. An expanded FHA would only benefit consumers by establishing a "level playing field" between the FHA and other government-sponsored mortgage programs.
Mr. Lazio, for one, disagreed. In his statement, he said, "the only real outcome of this proposal will be to energize Fannie Mae to engage in another expensive campaign to protect their government-subsidized market share."
Most FHA loans are pooled into securities guaranteed by another government agency, the Government National Mortgage Association or Ginnie Mae. While Fannie Mae and Freddie Mac do securitize some FHA loans, mortgage bankers favor Ginnie Mae's richer prices.
Last week, at least, Fannie Mae and Freddie Mac avoided any criticism of the plan.
Fannie Mae spokesman David Jeffers said the agency has not yet seen a detailed proposal. "But we are always encouraged when the issue of homeownership moves to the top of the country's agenda," he added. A Freddie Mac spokeswoman said her agency would have no comment.
The proposed FHA change is part of a menu of revenue-generating measures that would offset the $8.5 billion tab over six years for tax cuts and new initiatives outlined by Mr. Clinton last week. Ms. Rosen said the administration may ultimately implement a more modest change to the FHA program, such as setting a single national limit at 75% of GSE limits.