Even if interest rates continue to be as volatile this year as last year, sellers can expect to pay fewer points when their homes are purchased with FHA-insured mortgages.
Both Congress and the Reagan administration have urged the Department of Housing and Urban Development to adjust the FHA rate ceiling closer to the market. That means sellers will put up fewer point -- the percentage of the face value of a mortgage -- to bridge the difference between FHA and other interest rates.
In 1980 former commissioner Larry Simons waited until points crept up to 10 or more before raising the FHA ceiling.
He reasoned that changing the rate too often destabilized the sale of FHA mortgages in the secondary market, principally the market for Government Mortgage Association mortgage-baked securities know as Ginnie Mae.
Simons' approach came under fire in the last Congree. Legislators complained that high points cut into sellers' profit margins and inflated housing prices.
Seller often increased their asking prices to absorb the cost of high points. To prevent high points in the future, the Senate added language in the Housing and Community Development Act of 1980 that called on HUD "to minimize" points in times of rising interest rates.
The Reagan administration will eagerly follow that dictate, a HUD economist explains, because it will support the president's tight monetary policy.
The economist predicts that from now on Hud won't let points get any higher than seven or eight before changing the ceiling. Senate Democratic staff aides think that guideline is still to lenient.
The first indication of HUD's new policy came a few weeks ago when the agency lifted the FHA rate for single-family mortgages from 13 1/2 percent to 14 percent. although the increase came at a time when short-term rates were drifting down, long-term rates remained high because investors feared the uncertainties of the long-term market, the HUD economist explains.
Points were at about seven or eight when the FHA rate was increased and had been that way for a week or so. There are indications HUD may be even quicker to act next time.
If the FHA rate becomes more responsive to other interest rates, the housing market might benefit, especially when rates begin to decline, another HUD analyst points out. "S&Ls don't like to move the rate a lot" and therefore won't act as quickly as FHA, he believes.
However, National Association of Home Builders economist Robert Sheehan doesn't see much difference in the new approach. He points out that there's no sales activity at 14 percent anyway.
Eventually, the FHA rate may be adjusted directly by market forces. The last Congress also requested that 10 percent of all FHA mortgages be set at a rate negotiated between buyers and sellers. Procedures for this demonstration project have been held up as part of Reagan's 60-day regulatory freeze.