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HUD No. 98-09
Further Information:For Release
In the Washington, DC area: 202/708-1420Saturday
Or contact your local HUD officeJanuary 17, 1998


DALLAS, TX -- Housing Secretary Andrew Cuomo said today the Clinton Administration will propose a major new initiative to help millions more middle-class American families qualify to become homeowners, by allowing home mortgages of up to $227,150 to qualify for Federal Housing Administration insurance.

Speaking to the National Association of Homebuilders Convention in Dallas, Cuomo said the President will include the proposal -- which will not cost the government any money -- in the new Federal Budget he submits to Congress. The expanded FHA insurance coverage would be funded in the same way as existing FHA insurance -- by premiums paid by borrowers.

Cuomo said the higher ceiling on FHA mortgages will enable about 3 million more families to qualify for FHA mortgages over the next five years -- and millions more in future years.

"This new initiative will help transform homeownership from a distant dream into a sweet reality for more hard-working middle-class families," Cuomo said. "It will return FHA to its historic role as the driving force for homeownership across the nation, making FHA not just a fond memory of the past but a vehicle to the future. We need to get FHA back into the market and back into the business of helping middle-class families."

Because FHA loan limits have failed to keep up with rising home values, the agency’s share of home mortgage volume has declined dramatically over the years. In 1970, FHA accounted for 24 percent of home mortgage volume, but by 1996 FHA’s share had plummeted to just 10 percent.

Currently, FHA -- which is part of the Department of Housing and Urban Development -- insures home mortgages of varying maximums, depending on local housing costs. The limits range from $86,317 in communities where housing costs are lowest to $170,362 in communities where housing costs are highest.

The new Clinton Administration proposal would replace the varying maximums with a single nationwide maximum for mortgages eligible for FHA insurance. The new maximum would equal the loan limit that currently applies to Fannie Mae and Freddie Mac -- the two largest providers of credit for conventional home loans. This limit now stands at $227,150, and increases over the years to keep up with rising home prices.

"As a result of the President’s successful economic policies and homeownership strategy, our nation’s homeownership rate stands at 66 percent -- the highest level in American history," Cuomo said. "Nearly 68 million American families now own their homes -- 6 million more than when President Clinton took office. The President’s new plan will drive the homeownership rate even higher in the years ahead. "

"We’re all working toward the same goal," Cuomo told the Homebuilders. "More affordable housing, more homeowners, more stability and more prosperity."

FHA’s single-family home mortgage insurance program has been one of the most successful public-private partnerships in history. Over its six-decade history, the FHA has made homeownership available to about 24 million families.

FHA does not make mortgage loans directly, but rather insures loans made by private lenders to homebuyers. The FHA insurance guarantees the lender timely payment of principal and interest, in the event the homebuyer defaults on the loan.

Because the FHA mortgage insurance protects lenders from losses, it enables millions of Americans who would otherwise have been locked out of the mortgage market and homeownership to qualify for mortgages.

The FHA-insured loans benefit homebuyers in these ways: 1) Downpayments of only 3 percent are required -- lower than the minimum that lenders require for non-FHA mortgages. High downpayments are a major roadblock to homeownership. 2) Homebuyers can borrow closing costs in their mortgages -- something often not permitted with many non-FHA mortgages. 3) FHA’s requirements for homebuyer credit ratings are more flexible than those set by many lenders for non-FHA borrowers. 4) FHA permits homebuyers to use gifts from family members and non-profit groups to make their downpayments, while conventional loans generally require homebuyers to come up with downpayments on their own. 5) FHA permits a borrower to carry more debt than a private mortgage insurer would allow.

Cuomo said the higher loan limits would particularly benefit first-time homebuyers. Over 70 percent of FHA home loans go to first-time homebuyers.

The higher FHA loan limit would also provide a new source of funds to help maintain the supply of affordable housing in older urban areas. FHA’s 203(k) Rehabilitation Program, which can be used in these areas, combines the funds needed to purchase and repair homes into a single mortgage.

In addition, middle-class families living in metropolitan areas with high housing costs -- such as Boston, New York, Washington, San Francisco and Los Angeles -- will especially benefit by a higher FHA loan limit, Cuomo said. The current FHA loan limit of $170,362 is 15 to 30 percent below the $200,000 to $250,000 median sales prices for homes selling in these areas. The income necessary to qualify for a 7 percent FHA-insured mortgage at the proposed limit of $227,150 is $69,550 -- an amount in line with the median family income reported for many high-cost cities.

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