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HUD Archives: News Releases

HUD No. 99-50
Further Information:For Release
In the Washington, DC area: 202/708-0685Wednesday
Or contact your local HUD officeMarch 10, 1999


WASHINGTON - In a move to help more families become homeowners, Housing Secretary Andrew Cuomo today asked Congress to let the Federal Housing Administration insure up to $130 billion in home mortgages this year and another $130 billion next year - at no cost to taxpayers.

FHA's loan volume cap for the current fiscal year is $110 billion. The Department of Housing and Urban Development's Fiscal Year 2000 budget request had sought to increase the cap to $120 billion next year.

Appearing before a subcommittee of the House Appropriations Committee today, Cuomo said both this year's and next year's volume caps are too low to meet homebuyer demand, and asked that the caps be raised to $130 billion in each year. Under the request, FHA - which is part of HUD - could insure a total of about 400,000 additional mortgages this year and next year above the number it would otherwise insure if the FHA volume cap remained at its current level.

"American homebuyers recognize a good deal when they see it, and they know FHA is a good deal," Cuomo said. "As a result, more and more families are turning to FHA to make their dream of homeownership a reality. They know that FHA is back in business, and they know this is good news for hard-working families struggling to become homeowners."

"Allowing FHA to insure more loans won't cost taxpayers a dime, and it will help families across our nation build better lives as homeowners," Cuomo said. The FHA Insurance Fund is supported by premiums paid by borrowers who receive FHA insurance, rather than by taxes.

Cuomo also asked the subcommittee to increase the volume cap for Ginnie Mae, another agency within HUD, which acts as the secondary market for all FHA and VA (Department of Veterans Affairs) loans. He requested that Ginnie Mae's volume cap be raised from the current $150 billion to $200 billion this year. He asked that Ginnie Mae's request for a $200 billion cap next year be raised to $250 billion. The increased volume of FHA and VA loans creates a need for Ginnie Mae to have a higher cap on the amounts of loans it can purchase, Cuomo said.

FHA insured about 1.1 million home mortgages in Fiscal 1998, worth about $90.5 billion, Cuomo said. In the first four months of Fiscal 1999, FHA received 466,000 applications for about $42 billion in mortgage insurance. If applications continue at the first-quarter pace all this year - as appears likely - FHA will have to stop insuring mortgages before the year is over to avoid exceeding its current loan volume cap of $110 billion, Cuomo said.

Cuomo said FHA loan volume is increasing for several reasons:

  • Higher limits on individual FHA loans, which were requested by HUD and approved by Congress last year, are enabling more families to get FHA insurance to cover their mortgages. On Jan. 1, FHA began insuring mortgages of up to $115,200 in communities where housing costs are low and loans ranging up to $208,800 in communities where housing costs are high. This was the second increase in the loan limits since October 1998. Before the October increases took effect, the loan limits for FHA mortgage insurance ranged from just $86,317 to $170,362 - below the cost of most homes in many communities.

  • The strong economy created by President Clinton's policies, combined with HUD's homeownership programs, boosted America's homeownership rate to a record high in 1998, with 66.3 percent of all households owning their homes - compared with 64 percent when President Clinton took office in 1993. At the end of 1998, 69.1 million American families owned their own homes - the highest number in American history and 7.3 million more than in 1993. As homeownership grows, the demand for FHA mortgage insurance rises.

  • FHA is operating more effectively and efficiently under recent HUD reforms. For example, as a result of new automated underwriting, FHA has cut approval time for a mortgage insurance application from a range of four to six weeks to a range of two to four days.

Cuomo said increasing the volume of FHA loans will particularly benefit first-time homebuyers and minority homebuyers. Eighty percent of FHA loans last year went to first-time homebuyers. FHA insures over 40 percent of all mortgages to black and Hispanic homebuyers.

The higher loan volume cap will also apply to FHA's 203(k) Rehabilitation Program, which offers homebuyers an FHA-insured mortgage to finance both the costs of purchasing and repairing homes in older urban areas.

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

Because FHA mortgage insurance protects lenders from losses, it has enabled millions of Americans who would otherwise be locked out of the mortgage market and homeownership to qualify for mortgages. FHA-insured loans also benefit homebuyers in these ways:

  • FHA downpayments of 3 percent are lower than the minimum that many lenders require for non-FHA mortgages. High downpayments are a major roadblock to homeownership.

  • FHA's requirements for homebuyer credit ratings are more flexible than those set by many lenders for non-FHA borrowers.

  • FHA permits homebuyers to use gifts from family members and non-profit groups to make their entire downpayment, while conventional loans generally require homebuyers to come up with a portion of the downpayment from their own funds.

  • FHA permits a borrower to carry more debt than a private mortgage insurer typically allows.

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