Republicans on the Senate Banking Committee described at a hearing last week why they are wary of the Clinton administration's request to raise the FHA loan ceiling by one-third, to $227,150 nationwide.

Their questions to representatives of industry trade groups also suggested the direction of a possible compromise plan that would let the FHA approve larger loans in low- and mid-price markets but retain the existing $170,000 ceiling in high-price areas.

Sen. Connie Mack, R-Fla., whose housing subcommittee of the Senate Banking Committee oversees the FHA program, expressed concern that by letting the program approve larger loans "we are engaging in changing the mission and opening it to consumers that we had not intended." Borrowers would need an income of roughly $80,000 to qualify for a $227,150 FHA mortgage.

Sen. Mack also asked industry representatives how housing markets in small towns and other relatively low-price markets would be affected if the FHA loan limit, which is as low as $86,000 in some areas, were to be sharply increased to $227,150.

Suggesting a compromise, Sen. Lauch Faircloth, R-N.C., asked, "Why can't we move the lower limit up and leave the upper limit where it is?" He suggested the ceiling in low-cost markets be raised to $120,000 from just over $86,000 currently.

But representatives of the real estate, mortgage banking, and home building industries argued that low-cost areas would be little affected by an increase in the ceiling because the larger loans would be made mostly in high-cost metropolitan areas.

There, they said, home price growth has outpaced the growth in the FHA loan limit. Changing the floor but not the ceiling would do nothing to lift homeownership rates in large metropolitan areas, which are about 10 percentage points below the roughly 66% national rate, said Brian Chappelle, senior staff vice president of the Mortgage Bankers Association.

Catherine Whatley, a Jacksonville, Fla., Realtor who represented the National Association of Realtors, said the $227,150 limit also is needed in mid-price markets. Despite good credit, many families do not qualify for conventional loans because their mortgage and other debts amount to more than one-third of their incomes, Ms. Whatley testified.

Credit guidelines for Fannie Mae, Freddie Mac, and the private mortgage insurers restrict total indebtedness to 33% of income, but the FHA lets borrowers use as much as 41% of their income to service debt.

In an interview after the hearing, Ms. Whatley said that high child-care costs, which are counted in debt-service payments because they are a fixed expense, combined with car payments and even small credit card payments make it difficult for young families to meet the debt ratio for conventional loans.

When you add it all up, a couple earning $4,000 a month with $300 in child care costs, a similar amount in payments for two cars, and small credit card bills, might qualify for as little as $600 in mortgage payments under the conventional credit guidelines-significantly less than they are paying in rent, she said.

Sen. Mack heard a different view from Liz Ryan of the National Training and Information Center, Chicago. The group, headed by activist Gail Cincotta, has long argued that unscrupulous Realtors, real estate agents, and mortgage lenders steer inner-city borrowers who are not ready for homeownership into FHA loans and that the government program has contributed to neighborhood decay.

Ms. Ryan said she thought something similar would happen even when higher-income borrowers are involved. "What worries me is that someone who cannot afford it will be in that house" with the $200,000-plus mortgage, she testified.

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