PRESIDENT REQUESTS PLAN TO USE ADDITIONAL FUNDS GENERATED BY FHA FOR AFFORDABLE HOUSING

WASHINGTON - Responding to a new report that says the Federal Housing Administration has generated additional funds beyond previous projections, President Clinton has requested recommendations on how to best use excess FHA revenues to expand the supply of affordable housing over the next five years.

A report released Monday says the value of the FHA Insurance Fund for Fiscal Year 1999 was more than $5 billion above previous estimates.

The White House today released a directive the President issued to Housing and Urban Development Secretary Andrew Cuomo, Office of Management and Budget Director Jack Lew, and Domestic Policy Council Director Bruce Reed requesting "recommendations on how newly available funds can be used to further strengthen federal housing programs and develop a plan to enhance comprehensive affordable housing opportunities."

Recommendations could include subsidizing the construction of new affordable rental housing, downpayment assistance programs to increase homeownership, funding for new rental assistance vouchers, and other initiatives.

"One of the fundamental goals of my Administration has been to reinvent government, to make it serve the public better and restore public confidence in the institutions of government," the President said in his directive. "The Department of Housing and Urban Development has met these goals well…. And as the improved administration of HUD and the FHA make available additional resources, we will have the opportunity to do even more to ensure that all Americans have access to affordable housing."

"More than 5 million struggling American families are in desperate need of affordable housing," Cuomo said. "These families now spend over half their income on housing and they can barely make ends meet. Investing any excess funds from FHA to help these families get the housing they need will help transform their lives and will help revitalize communities across our nation."

Cuomo thanked Senator John Kerry of Massachusetts for the Senator's work to provide more funding for affordable housing. "I look forward to working in partnership with Senator Kerry, who is a champion of affordable housing and has proposed a comprehensive housing program," Cuomo said.

Cuomo was joined at a news conference today by Congressman John LaFalce of New York and by representatives of the following groups: The National Association of Home Builders, the Mortgage Bankers Association of America, and the National Low-Income Housing Coalition to express support for using excess FHA revenues for affordable housing.

Senator Kerry said: "I welcome this effort by President Clinton and Secretary Cuomo. They have been strong advocates for housing. I have proposed a National Housing Trust Fund. These efforts are critical in helping meet the affordable housing needs of the nation."

Congressman LaFalce said: "I am pleased to join Secretary Cuomo in celebrating the good news about the strength of the FHA fund, and to launch a process of expanding its successful homeownership and affordable housing mission."

Congressman Barney Frank of Massachusetts said: "I am very pleased by HUD's new initiative to use available FHA surplus funds to increase the affordable housing supply for lower income people. I am particularly pleased that new construction of affordable housing will get serious consideration. The current crisis in affordable housing in certain areas has, ironically, been made worse by a prosperity that benefits most of us. This an excellent example of how we can use part of the revenue from a booming economy to alleviate social injustice."

Christopher J. Sumner, President of the Mortgage Bankers Association of America, said: "This is a unique opportunity for a real chance to make a difference in many lives, to support further the already successful federal housing programs and to develop new approaches. Secretary Cuomo has my pledge that we will work with you to further his contribution by using these hard-earned funds wisely and well."

Robert Mitchell, President of the National Association of Home Builders, said: "We will work cooperatively with the Administration and Congress to explore the best way of using excess funds generated from the FHA's revitalized Mutual Mortgage Insurance Fund to expand homeownership opportunities."

FHA, which is part of HUD, generates revenue through its Mutual Mortgage Insurance Fund. The fund collects revenue from fees FHA charges for mortgage insurance. FHA currently returns funds it generates above expenses to the U.S. Treasury each year.

Because of successful management reforms at HUD and FHA, FHA is now expected to bring in additional funds between the years 2002 and 2006 above projections contained in the President's proposed Federal Budget for Fiscal Year 2001.

An independent report issued Monday by the accounting firm of Deloitte & Touche concluded that FHA is in its strongest financial condition since it was created in 1934, with a record economic value of $16.6 billion.

The Deloitte & Touche study says the record $16.6 billion economic value of the FHA's insurance fund is an increase of $5.3 billion over 1998. The study says this improvement will withstand potential economic downturns. The economic value of the fund is defined as the sum of existing capital plus the value of current insurance in force.

The report also states that FHA's capital adequacy ratio is 3.66 percent - far in excess of the Congressionally mandated goal of 2 percent. The capital adequacy ratio is the economic value of the fund divided by the total insurance in force.

In addition, Deloitte & Touche found that FHA has made a remarkable turnaround from just ten years ago. The FHA insurance fund had an economic value of negative $2.7 billion in 1990. FHA suffered years of mismanagement in the 1980s, and by 1990 it had projected losses from claims on mortgage insurance far in excess of projected revenue. Absent radical restructuring, a costly federal bailout seemed inevitable.

FHA does not make mortgage loans directly, but rather insures loans made by private lenders to homebuyers. Last year FHA insured a record 1.3 million mortgages worth $125 billion. Because FHA mortgage insurance protects lenders from losses, it has enabled 30 million American families who would otherwise be locked out of the mortgage market and homeownership to qualify for mortgages.

FHA now insures about 6.7 million mortgages. When homeowners fail to make payments on mortgages insured by FHA, the agency first tries to help them stay in their homes through foreclosure avoidance. If this is not successful, the lender forecloses on a home and conveys it to FHA in exchange for FHA payment of the outstanding mortgage balance. FHA then puts the home up for sale.

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. Higher downpayments are a major roadblock to homeownership.

• FHA's requirement 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.