The federal government's FHA insured single-family home mortgage program -- for 47 years a major source of financing for moderately priced housing -- may be living on borrowed time.
Although the program apparently will escape any reduction of its credit limits in the administration's budget proposals to be released March 10, it may come under close scrutiny later this year by a presidential commission now being contemplated by the Department of Housing and Urban Development.
The commission would be HUD's compromise with the Office of Management and Budget over the amount of credit allocated to FHA in the 1981 credit budget, interviews with HUD and OMB officials indicate.
The credit budget was included for the first time in 1981 to hold down the government's involvement in the money markets. OMB had wanted to lower FHA's 1981 credit allocation from $34 billion because it believed that private mortgage insurers could offer equivalent service at a lower price, a HUD official says. While the government insures 100 percent of an FHA mortgage, private insurers underwrite only 20 percent of a conventional mortgage at a substantially reduced premium.
Budget officials have been impressed at the rapid growth of private insurers in the last few years. Private insurers now underwrite more homes than FHA and have the capacity to provide insurance for all nonsubsidized home mortgages. They also contend that an FHA phaseout would lead to an elimination of about 5,000 jobs from the federal payroll and "volumes of regulation," an OMB housing expert explains.
However, HUD Secretary Benjamin F. Pierce opposed "a shift of such magnitude" done "casually" as part of the budget process, a recently departed HUD official says. Consequently, the two sides reportedly have agreed to keep credit authority at present levels until the administration can conclude its study of the program, probably through a presidential commission, the HUD official says.That menas FHA authority will be lower than proposed by former president Carter in January. He had asked for a $4.8 billion increase from higher allowable FHA mortgage limits for homes in markets with a high cost of housing. Both HUD and OMB see no reason for that increase, however, based on activity so far this year.
Although HUD has not made a final decision on whether to ask for a presidential commission, wuch a request seems likely. If called, it would consider a broad range of housing issues including housing affordability and housing subsidized by sources other than FHA. Trade representatives such as mortgage bankers, builders, realtors and thrifts would be included, an OMB official explains.
The major roadblock to an FHA phaseout is the massive secondary market for Government National Mortgage Association mortgage-backed securities (Ginnie Maes). The securities carry a lucrative servicing fee not available in other secondary market programs. In addition, because Ginnie Maes are government backed they offer favorable yields. Steven P. Doehler, staff vice-president of the Mortgage Insurance Companies of America says "the mortgage bankers may have the biggest stake in the issue."
Yet, while Dr. Mark J. Riedy, executive vice president of the Mortgage Bankers Association expresses concern about OMB's present stance, he's not necessarily opposed to change. "I would not like to see FHA endangered unless there's something to take Ginny Mae's place." That would have to come from some conventional mortgage-backed security program, he says. Although both the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, two major secondary markets, are working on such programs, they're several years away from being able to take the place of Ginny Mae, Riedy says.