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Housing Administration Faces Radical Change
The Federal Housing Adminis
tration, long revered for its part in
creating a middle-class lifestyle for
millions of American households, is
facing radical change or even com
plete elimination within the next year.
A feeling that the agency has
become lumbering, wasteful and ir
relevant is growing among a spec
trum o f opinion makers ranging from
firebrand first-term Republican mem
bers o f Congress to local housing
activists.
And even the Department o f
Housing and Urban Development,
which is fighting for its very exist
ence against Republican onslaughts,
has proposed changing FH A from an
agency under its umbrella to a gov
ernment corporation with fewer di
rect ties to federal housing bureau
crats.
Ironically, the staunchest cham
pions o f retaining the FHA as it is are
normally found arm-in-arm with the
Republicans they now confront —
groups such as the mortgage bank
ers, Realtors and home builders.
These groups, o f course, have profit
ed enormously over the years from
FHA mortgage insurance that has
stimulated the buying, building and
financing o f homes, particularly in
lower-income areas.
But this Congress, with smaller-
government zealots looking every
where for federal programs to cut,
appears poised to make far-reaching
changes. And FHA’s recent history
o f scandal and staggering losses in its
multifamily programs — plus high
single-family default rates in many
poor, urban areas— makes the agen
cy highly vulnerable. Proposals for
reform range from just tinkering with
the agency’s structure to completely
dismantling it.
One ambitious program being
developed by a key Republican con
gressman, Rep. Rick Lazio o f New
York, chairman o f a pivotal housing
subcommittee, would put the FHA in
a new cabinet-level department that
would replace HUD and deal in an
integrated way w ith a range o f prob
lems facing communities around the
country.
The changes may not come until
next year — and they may not come
at all, given FHA’s durability and the
political crosswinds o f a presidential
election year — but they are almost
certain to be given strong consider
ation.
“ I see storm clouds forming and
I hear claps o f thunder, and that sug
gests an impending storm ,” said
Michael Ferrell, chief lobbyist for
the Mortgage Bankers Association
o f America. “How severe itw illbe, I
just don't know.”
The FHA was born in 1934 dur
ing the Great Depression, providing
a government guarantee for long
term housing finance at a time when
the few home loans that could be had
required up to 50 percent down and
had to be refinanced after 5 or 10
years. It was targeted to financing
new construction as an economic
stimulus measure.
The agency’s heyday was ip the
late ’40s and ’50s, when FHA-in-
sured loans were the money engine
that powered the phenomenal growth
of new suburbs across America,
spearheading an increase in the home-
ownership rate from 44 percent in the
mid-1930s to 62 percent to 1960.
The only criticism o f the FHA’s
role during that era was that it; along
with federal highway spending, may
have helped spur white and middle-
class flight from the cities.
To answer that complaint, FHA
in the 1960s began making loans on
existing homes in the cities along
with new homes in the suburbs, a
move that was initially hailed by
housing activists.
But in the years that followed it
became clear that unscrupulous real
estate agents and lenders were using
the 100 percent mortgage guarantee
to entice people into homes they
couldn’t pay for, leading to wide
spread foreclosures in certain neigh
borhoods.
Meanwhile, FHA’s program of
financing lower-income apartment
development ran into serious prob
lems with mismanagement and fraud
during the 1970s and 1980s.
While the FHA was taking these
hits, the mortgage lending industry,
under government prodding, devel
oped into an enormous, sophisticat
ed and flexible money machine that,
more and more, is beginning to lend
to the first-time, lower-income and
minority home buyers that ostensi
bly have been I I lA ’sm ain reason for
being.
Supporters o f FI IA point out
that in 1993 I I percent o f FHA bor
rowers were African-American and
41 percent had incomes below 80
percent o f median. In contrast, only 4
percent o f borrowers using private
m ortgage insurers were African-
American and 14 percent were be
low 80 percent o f median.
Fannie Mae Expands Rural Lending Options
Direct home mortgage loans that
provide no down payment financing
for lower income rural residents will
be more widely available through a
partnership announced Tuesday be
tween the federal Rural Housing and
Community Development Services
department and Fannie Mae.
By agreeing to purchase con
ventional first mortgages in conjunc
tion with the department’s issuance
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o f subsidized second mortgages, Fan
nie Mae dramatically increases the
availability o f affordable rural loans
to low-income borrowers.
The combined first and second
mortgages can eliminate the need for
adown payment, providingqualified
rural borrowers with up to 100 per
cent ofthe financing required to com
plete a home purchase.
T he effe c t o f a co n v en tio n al
first m ortgage at m arket interest
rates and a subsidized, low -in
te re st se c o n d m o rtg a g e g iv e s
borrow ers 30-year financing with
an effectiv e loan paym ent th at is
below m arket rates.
Dependingon final congression
al appropriations, up to 20,000 rural
households could receive 30-year
fixed rate mortgages under the pro
gram.
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