Opposition is mounting from thrifts across the country against proposed Clinton administration legislation that would raise the Federal Housing Administration's single-family mortgage loan program cap to 85% of the Fannie Mae/Freddie Mac ceiling.
The yet-to-be-introduced legislation, according to the California League of Savings Institutions, would have the Department of Housing and Urban Development raise its FHA single-family mortgage loan ceiling to about $172,000 from its current $152,000.
Thrifts contend that changing the FHA limits would put government resources at risk and would heighten competitive advantages that mortgage bankers hold over them by providing loans to people who don't need the assistance.
A hearing on the solvency of the FHA Mutual Mortgage insurance Fund, the subsidy at the heart of the debate, will be held July 27 before the House subcommittee on Housing and Community Development. chaired by Rep. Henry B. Gonzalez, D-Texas.
"The government has scarce resources to begin with, and when you raise FHA loan limits, you're redirecting these scarce resources to upper middle-class families who don't need the assistance to buy a house," said a spokesman for the Savings & Community Bankers of America. "These people could easily come to our institutions and get a loan, and shouldn't even be getting the consideration."
Mortgage bankers, however, claim the higher ceilings will do a number of positive things for home buyers and lenders alike. including eliminate red tape.
"We view [the proposed legislation] very positively," said Mike Ferrell, senior staff vice president and legislative counsel for the Mortgage Bankers Association of America. "If they raise the statutory floor, it'll reduce the HUD paperwork that must go into computing high-cost areas."
The MBA said proposed limits covered by the new floor would reach two-thirds of the current high-cost areas. The current FHA limit is $62.000 and the proposed bill would raise it to between $89,000 and $92,000. They also said implementation would reduce paperwork and keep communities from wading through mountains of paperwork to determine mortgage rates.
The MBA also claims the legislation will help give people in higher cost-of-living regions the opportunity to use FHA programs to help them buy homes when they otherwise wouldn't qualify.
"People [in higher cost-of-living] regions maybe locked out because of the mortgage limits," Ferrell said. "If the goal is to put good, qualified people in housing, then why should the government be in the business of excluding them?
"In many areas of the country, like California, these people can't avail themselves to FHA insurance because the limits are artificially depressed. This plan is more consistent and would draw in more people - the way FHA was designed. Broadening the base just ensures greater solvency of the fund."
While the thrifts understand that argument, SCBA argues that provisions still have to be made to ensure fair business practices.
"You have to draw the line somewhere," the association spokesman said. "Our problem is that they're drawing the line at a high level and really cutting into where the private sector can provide for home loans. We could just as easily be making those loans."
Ferrell will HUD may introduce the first of two bills aimed at making changes in FHA this week, but he wasn't sure if the mortgage limit provision would be in it. Other changes in FHA, such as streamlining down payment requirements and creating risk-sharing programs with state agencies, would probably be delayed to be presented with the housing bill, also expected before the congressional year-end recess.