The nation's housing industry leaped into the battle yesterday over the 1983 housing budget cuts proposed by the Office of Management and Budget, saying they would mean the end of the FHA and VA mortgages that are the only ways many young and moderate-income families can buy homes.
At a joint news conference, officials of the traditionally Republican National Association of Realtors, National Association of Home Builders and Mortgage Bankers Association denounced the OMB proposals as "reckless and deceptive."
Their main objection is to a proposal to eliminate the Government National Mortgage Association, known as Ginnie Mae, which buys up FHA and VA mortgages from savings and loan associations and other lenders, then resells them in large bunches to investors. This re-sale system then leaves the original lenders free to make new loans.
The groups said elimination of Ginnie Mae would prevent thousands of families a year from buying homes, would ultimately raise interest rates, would reduce the availability of mortgage funds, and would not cut the budget deficit. This last is because they look on Ginnie Mae as simply a reprocessor of loans and say it does not subsidize them.
In developing plans for fiscal 1983, OMB has proposed hacking out vast portions of the budget for the Department of Housing and Urban Development. The part that has received the most attention involves housing subsidies for poor persons. But another portion of HUD's budget involves government backing for home loans for middle-income families through Ginnie Mae and the Federal Home Administration.
The housing industry is in the worst depression it has known since World War II, and most potential homebuyers have been shut out of the market by historically high interest rates. The already bruised housing groups said an end to Ginnie Mae would make a disaster situation worse.
"We're in a gut fight," said Julio Laguarta, president of the National Association of Realtors. "The administration has wanted to cut housing programs before, but now they're going for the jugular."
"This couldn't come at a worse time," said Mark Riedy, executive vice president of the Mortgage Bankers Association. The proposal ultimately "will raise the cost and reduce the availability of mortgage funds," he added.
OMB wants to reduce FHA credit activity sharply from HUD's proposed level of $35 billion to $24 billion for fiscal 1983. It wants, in addition, a five-year phase-out of Ginnie Mae.
The FHA and VA provide about the only source of long-term, fixed-rate mortgages with low down payments--5 percent for FHA and zero for VA--which is why they help mainly the first-time homebuyer, the housing groups said. The homebuyer pays a one-half percentage point premium for the government backing.
Conventional loans are insured by private mortgage insurance companies or, if the down payment is at least 20 percent, not at all.
FHA and VA provide about a fifth of all mortgages for new homes, and a large fraction as well for existing homes that change hands.
HUD Secretary Samuel R. Pierce appealed OMB's proposal to the White House, and housing industry sources said he has pledged to them he will work for continuation of FHA and Ginnie Mae programs at current levels. At the same time, they worry that the secretary will not be a match for OMB Director David A. Stockman.
Stockman has indicated he believes the administration can cut the Ginnie Mae credit levels itself without congressional authorization, but members of Congress, including key Republicans, have disagreed and opposed the OMB plan.
Sen. Jake Garn (R-Utah), chairman of the Senate Banking Committee, said through a spokesman that he feels the OMB idea "is a wrong idea at the wrong time" and that it "sends a negative message when the housing industry is struggling to get back on its feet."
The chairman of the Senate Budget Committee, Republican Pete V. Domenici of New Mexico, as well as most other panel members, would be unlikely to support such a cut either, according to Budget Committee sources.
On the House side, Banking Chairman Fernand J. St Germain (D-R.I.) and housing subcommittee Chairman Henry B. Gonzalez (D-Tex.) blasted the idea and said their panels would block it.
One group that hailed the OMB proposal was the Mortgage Insurance Companies of America, the trade association for private mortgage insurers, who say they can handle the same functions as government insurance if given the chance.