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CHANGES SOUGHT IN FHA MORTGAGE LIMITS, CLOSING COSTS AND PREMIUM REFUNDS

 CHANGES SOUGHT IN FHA MORTGAGE LIMITS, CLOSING COSTS
 AND PREMIUM REFUNDS
 WASHINGTON, April 3 /PRNewswire/ -- Higher loan amounts, better geographic diversification and smaller refunds of upfront premiums on prepaid loans are among the changes needed to restore the fiscal health of the Federal Housing Administration's (FHA) Mutual Mortgage Insurance Fund (MMIF), according to the National Association of Home Builders (NAHB).
 NAHB also recommends that, to increase FHA's single-family mortgage insurance activity, the Department of Housing and Urban Development (HUD) should rescind the limits imposed last year on the financing of closing costs. These limits have had an inequitable effect in high closing cost states, putting FHA financing beyond the reach of many moderate income families.
 An actuarial analysis performed by the accounting firm of Price Waterhouse earlier this year estimated that the value of the MMIF, which insures FHA single-family home loans, fell by $5.8 billion in fiscal year 1990 to an economic value of a negative $2.7 billion. NAHB is surprised by the erratic results of the Price Waterhouse analyses. NAHB therefore recommends that an independent analysis of the MMIF be conducted with the involvement of the housing industry.
 "Despite its other deficiencies, the Price Waterhouse report finally admits what we at the Home Builders have been saying to HUD and the Congress for some years -- that higher valued loans are safer loans," said Robert "Jay" Buchert, president of NAHB, who appeared today before a Senate Housing Subcommittee hearing on FHA issues. "Making higher value loans will increase the value of the FHA MMIF."
 Under current law, Congress has set a single national limit for FHA mortgages at $67,500, and allows the loan ceiling to rise to $124,875 in high cost areas. Despite the adjustments permitted for high cost housing markets, the FHA loan limits are still too low to ensure a good geographical distribution of FHA loans and to allow FHA access to high quality loans.
 NAHB is urging Congress to set the FHA mortgage ceilings at the lower of 95 percent of the median price of housing in an area, or 85 percent of the Fannie Mae/Freddie Mac loan limit, which is currently set at $202,300.
 "There are two good reasons to take this action," explained Buchert. "First, as Price Waterhouse now concedes, larger loans perform better than smaller ones. Secondly, the FHA MMIF would be stronger if its portfolio included a better representation of mortgages from all parts of the country."
 The National Affordable Housing Act of 1990 (NAHA) raised the insurance premium on single-family mortgage insurance by charging a 0.5 percent mortgage premium to be paid over a number of years, depending upon the size of the borrower's down payment. This is in addition to an existing upfront 3.8 percent that is now paid on FHA loans at closing.
 "The burden for paying for HUD's past mistakes, its poor bookkeeping, its failure to know how much it costs to resolve a claim and all other past errors has been placed upon new FHA borrowers by imposing a surcharge of $700," said Buchert. "In other words, a third of the new upfront premium effectively goes, not to insure the new borrower's mortgage, but to pay for past mistakes made by HUD."
 FHA's relatively low downpayment requirements and favorable underwriting procedures have made it the only home purchase financing available for large numbers of low- and moderate-income households. The higher premiums and upfront cash requirements make FHA insurance less accessible to those most in need and less attractive to lower- risk borrowers who have other alternatives.
 The largest single obstacle for young families trying to get into the housing market for the first time is coming up with the necessary cash to make the downpayment and handle the closing costs. That's where the real value of FHA comes into the marketplace. In order to shore up the solvency of FHA's MMIF and ensure that the FHA does a sufficient amount of business to remain a cornerstone of U.S. housing policy, NAHB urges that the FHA institute the following reforms:
 -- Increase mortgage limits, as stated above.
 -- Reduce premium refunds on prepayments of mortgage loans made prior to the implementation of the housing act of 1990.
 -- Rescind the 57 percent limitation on financing closing costs. FHA Multifamily Mortgages
 With regard to FHA multifamily mortgages, NAHB believes the FHA multifamily sector could be put back on track if the following recommendations are implemented:
 -- HUD's implementation of subsidy layering restrictions makes it impossible to use HUD programs with tax credit projects. The guidelines do not recognize the realities of the marketplace and are an unnecessary administrative layer. They should be withdrawn and Congress should require HUD to rely on the assessments that are already required of the state housing credit agencies.
 -- Delegated processing is working but needs some modifications. HUD should take steps to require field offices to use the system in appropriate situations.
 -- Applications are up for insurance of mortgages on projects not relying on tax credits, and HUD should set production goals for field offices to make sure processing occurs on a timely basis.
 -- Steps need to be taken to spur the development of a robust secondary market for multifamily mortgages. New risk-sharing concepts should be considered to support such initiatives.
 -0- 4/3/92
 /CONTACT: Jay Shackford of the National Association of Home Builders, 202-822-0406/ CO: National Association of Home Builders ST: District of Columbia IN: SU:


TW -- DC015 -- 4870 04/03/92 13:44 EST
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Date:Apr 3, 1992
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