The nation's organized homebuilders this week urged the Reagan administration to preserve the traditionall nonsubsidized FHA mortgage insurance program that they fear may be threatened with phased-out extinction.
Repeating support for the Reagan economic program and a willingness "to accept our fair share of budget cuts," Herman J. Smith, president of the National Association of Home Builders, said: "We have been getting mixed signals from the administration" on FHA.
The administration's proposed budget cuts included a four-year ceiling on the total amount of FHA single-family-home mortgage loans insured on the basis of buyer payments (one-half percent annually of the mortgage amount). The Mortgage Bankers Association immediately criticized the ceiling as a futre deterrent of FHA home financing, especially when housing production increases from its depressed level of 1.2 million starts annually.
The homebuilders this week joined the MBA in pleading for retention of the federally insured mortgage, dating back to the beginning of the Federal Housing Administration in 1934. Smith pointed out that more than 16 million families have purchased homes with mortgages insured by FHA, now a part of the Department of Housing and Urban Development.
Smith contended that one HUD spokesman denied the FHA mortgage insurance program will be phased out but that another "is running around town saying FHA is unnecessary, distorts capital markets and can easily be replaced by private mortgage iunsurance carriers."
Informal speculation also has the Reagan budget-cutters using the proposed ceiling on FHA mortgages as "window dressing" because the loan program last year was considerably less the the proposed limit of $35 billion. However, the private mortgage insuring industry now is unabashedly calling for an end to the FHA home insuring program is unnecessary.
In recent years private mortgage insurance, which insures only the top part of the mortgage but has rates slightly less than FHA's, has been used increasingly by conventional (non-federally-insured) by loan makers.
But builder Smith and mortgage banker executive Mark J. Riedy both pointed out that home buyers at the lower end of the for-sale housing market depend on FHA and VA loans, especially in periods of tight money and high interest rates when lenders tighten credit guidelines. Down paument requirements are lower for FHA-VA loans, and its 14 percent mortgage ceiling is now at lest 1 percentage point below the conventional level.
It is ironic that private mortgage insurance was organized and grew in the 1970s as an alternative to FHA and VA but now seeks to supplant them as an alternative. Federally backed mortgage loans on single-family houses were the basis on this nation's long-term, fixed rate mortgage amortization program that now is being thretened by increasing moves of private lenders to what Smith calls "flex-interest-rte" mortgages that peg future payoff rates to changes in mortgage rates.
Today's high level of mortgage rates and the conventional lenders' move to flexible rates reflect an increasing worldwide competition for funds and also the many older, existing mortgages yielding less than lenders have to pay today to obtain new funds. This hits both savings and loan institutions and the Federal National Mortgage Association with its portfolio of $53 billion in home loans.
Meanwhile, Sen. Jake Garn (R-Utah) told real estate executives gathered here for legislative meetings that congressional budget cutting is essential because "this country is in a financial crisis. We are buying a lot more government than we can afford." Without a halt in budget increases, the chairman of the Senate Banking Committee said, the federal budget could increase to $1 trillion before the end of Reagan's first term.
Office of Management and Budget Director David Stockman said grass roots' support for the administration's budget-cutting program is needed to sway members of Congress who "have been living in a dreamland with the economic policies of the last four or five years."
The National Association of Realtors announced that sales of existing single-family houses declined to a five-year low of 2.8 million in 1980 due to high mortgage rates and a slow economy. NAR executive Jack Carlson nevertheless predicted mortgage rates will "decline slowly during 1981." But NAHB's Smith said he agreed with Federal Reserve Board Chairman Paul Colcker in refusing to sepcualte when mortgage rates will come down.