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NAR PRESIDENT RESPONDS TO KEN HARNEY'S COLUMN

 NAR PRESIDENT RESPONDS TO KEN HARNEY'S COLUMN
 WASHINGTON, June 9 /PRNewswire/ -- The following is the text of a


letter by Dorcas T. Helfant, president of the National Association of Realtors, to Ken Harney of The Washington Post in response to Harney's column on the Federal Housing Administration's single-family mortgage insurance program. The column, which ran in newspaper real estate sections nationwide last weekend, is "ill-founded and littered with inaccuracies," Helfant says in her letter.
 The National Association of Realtors takes issue with your recent column on the Federal Housing Administration's single-family mortgage insurance program. We find the arguments by Gail Cincotta to be ill- founded and littered with inaccuracies. More importantly, we feel you have done a disservice to America's taxpayers and potential home buyers by giving credence to positions that ignore some very important points.
 Your point that the auditing firm of Price Waterhouse has found the principal insurance fund that backs FHA home mortgages to be insolvent is just plain inaccurate. The single-family mortgage insurance fund, indeed, has positive government equity. I don't deny that the fund has lost money in the 1980s. However, technical insolvency requires zero cash -- clearly this is not the case and will not be the case this century.
 Recent losses to the fund largely are the result of FHA being left as the dominant home financing source in weak economic areas -- markets abandoned by the private mortgage insurance industry. Despite the economic problems and increased claims on the single- family insurance fund, the existing reserves and equity have been adequate to respond to the problem with no additional revenue needed. Furthermore, the FHA continued to provide assistance to home buyers in areas where the private mortgage industry effectively stopped providing assistance to low- and moderate-income home buyers.
 The contention that FHA is a "mini-S&L crisis already in progress" is grossly inaccurate. Even the U.S. Department of Housing and Urban Development told the Senate in testimony that drawing parallels between FHA the Federal Savings and Loan Insurance Corp. debacle is "irresponsible." FHA's greatest losses came in the multifamily program. The multifamily coinsurance program has been discontinued. The single-family program always was intended to be a program for working families and has never required an appropriation by Congress.
 FHA, represents the best, and in many cases, the only, route first-time buyers can take to achieve home ownership. This program is designed to provide a source of long-term mortgage financing to home buyers in all parts of the nation. But, spiraling home prices in many communities have effectively cut off families in those areas from access to FHA mortgage insurance, leaving many middle-income Americans without a practical alternative to higher-cost, privately insured home loans. Increasing numbers of entry-level buyers in high-cost areas are finding home ownership out of reach.
 This brings me to our argument that a higher mortgage insurance limit would strengthen the FHA portfolio by making it more diverse. The program must be able to insure loans in San Francisco and New York so it can continue to insure loans in Denver and Houston. Keeping the program unusable in thriving markets would pose a far greater risk to the fund for the future than making an adjustment to its loan limit provisions. If FHA is not permitted to insure better performing, higher value loans in strong markets, it ultimately will have a curbed capacity to insure smaller loans in lower-cost, sluggish markets.
 The contention that bigger loans have higher default rates also is erroneous. Historical evidence shows that higher value loans are less likely to default than lower value loans with the same loan-to- value ratios. The latest published data from HUD on FHA reveals that high value mortgages originated between 1980 and 1987 have lower claims rates than low value mortgages originated during the same period. Mortgages of $60,000 or over had the lowest claims rates, and mortgages of $50,001-$60,000 have the next lowest claims rates. Mortgages between $15,001 and $25,000 had the highest claims rates and mortgages between $25,001 and $35,000 had the second highest claims rates. (It's interesting to note that HUD has refused to publish any more recent data on claims rates.)
 Your use of data from the Mortgage Insurance Companies of America, which relies heavily on non-conforming, jumbo loans for its default experience on loans greater than $135,000, clearly was misleading. How does the default experience of a low-doc/no-doc $400,000 jumbo adjustable-rate mortgage determine the expected performance of a $140,000 loan in suburban Washington, D.C? When MICA representatives presented the same date three years ago, they were widely criticized for including the low-doc, jumbo loan data.
 FHA was never intended to be a low-income subsidy program, nor has it been targeted solely to families falling below a certain income range. Created by the National Housing Act of 1934, FHA was established in response to the general lack of available mortgage insurance during the Great Depression. Economic and political forces have modified FHA's single-family mortgage insurance program over the years. It has become an increasingly important financing tool for entry-level buyers. NAR statistics show that the proportion of FHA- insured mortgages going to first-time buyers rose from 43 percent in 1984 to more than 70 percent this spring. FHA has been and is there for those first-time buyers, while the private insurers, in many cases, have backed out.
 Regarding your comments on the proposed rescission of the "57 percent rule," let me shed some light on this point. HUD's July 1991 regulation prohibiting buyers from financing more than 57 percent of the closing costs on a FHA-insured mortgage went beyond the intent of the 1990 National Affordable Housing Act. The impact of HUD's excessive regulation has been to increase the out-of-pocket cash requirements and create an unreasonable barrier to many prospective home buyers. Now, HUD is attempting to justify retaining the closing cost restriction, based on the conclusions of the Price Waterhouse reports. However, rather than helping to improve FHA's fiscal strength, the change is causing FHA to lose business. Home buyers with no other financing alternatives have been shut out of FHA, and those who can afford other mortgage sources are turning to them. FHA is losing people at both ends. NAR's support for rescission of the "57 percent rule" is joined by support from at least a dozen other housing industry groups, not just the three you mention in your column.
 My hope is that you will re-examine the arguments on this issue. While there is room for improvement in the FHA program, it should not be eliminated. HUD Secretary Kemp has described FHA as "one of this government's great success stories" and a "cornerstone of America's housing policy." We would hate to see such an important vehicle to home ownership crash because of some over-zealous alarmists. Let's see how we can work together to keep the cornerstone intact, and to make it work better.
 -0- 6/9/92
 /CONTACT: Liz Duncan of the National Association of Realtors, 202-383-1043/ CO: National Association of Relators ST: District of Columbia IN: SU:


DC -- DC029 -- 8587 06/09/92 18:04 EDT
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Date:Jun 9, 1992
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