I am a lawyer; please explain the logic: The FHA goes upmarket -- Washington's latest benefit for the not-so-poor
From The Washington Post:
Created during the depths of the Great Depression, the Federal Housing Administration has a long history of supporting homeownership in the United States. In recent decades, its mission has been to enable lower-income Americans to tap otherwise inaccessible mortgage credit. Purchasers who meet certain qualifications can get a house with a lower-than-usual down payment -- as little as 3.5 percent, currently -- and the FHA compensates the lenders for the added risk by agreeing to pay off defaulted loans. The money comes from buyers' insurance premiums, not tax revenue, but these deals are possible only because, in the final analysis, they're backed by the U.S. government.
One may debate the costs and benefits of the FHA's historical role. At relatively low upfront taxpayer cost, it has helped expand homeownership, even though many loans went sour over the years. But what must be debated, and indeed challenged, is the stepped-up use of the FHA to boost demand for, and hence the price of, houses in the current crisis. This is true not only because of the fiscal implications; the FHA's reserves are currently below the statutory minimum, raising the specter of an eventual taxpayer rescue. It is true also because of the regressive distributional implications; the FHA is increasingly helping people who are decidedly not poor to buy houses that are anything but modest.
Legislation last year nearly doubled the maximum mortgage the FHA could insure, to $729,750 for single-unit properties and almost $1 million for multi-unit ones. As a result, the FHA is moving into expensive markets, especially on the West Coast, in which it previously had little or no role. Even some fairly fancy condo buildings are now trumpeting FHA financing. As the New York Times reported recently, among those buying property with little or no money down, thanks to FHA, are investors and well-off people who could have come up with more equity.
Created during the depths of the Great Depression, the Federal Housing Administration has a long history of supporting homeownership in the United States. In recent decades, its mission has been to enable lower-income Americans to tap otherwise inaccessible mortgage credit. Purchasers who meet certain qualifications can get a house with a lower-than-usual down payment -- as little as 3.5 percent, currently -- and the FHA compensates the lenders for the added risk by agreeing to pay off defaulted loans. The money comes from buyers' insurance premiums, not tax revenue, but these deals are possible only because, in the final analysis, they're backed by the U.S. government.
One may debate the costs and benefits of the FHA's historical role. At relatively low upfront taxpayer cost, it has helped expand homeownership, even though many loans went sour over the years. But what must be debated, and indeed challenged, is the stepped-up use of the FHA to boost demand for, and hence the price of, houses in the current crisis. This is true not only because of the fiscal implications; the FHA's reserves are currently below the statutory minimum, raising the specter of an eventual taxpayer rescue. It is true also because of the regressive distributional implications; the FHA is increasingly helping people who are decidedly not poor to buy houses that are anything but modest.
Legislation last year nearly doubled the maximum mortgage the FHA could insure, to $729,750 for single-unit properties and almost $1 million for multi-unit ones. As a result, the FHA is moving into expensive markets, especially on the West Coast, in which it previously had little or no role. Even some fairly fancy condo buildings are now trumpeting FHA financing. As the New York Times reported recently, among those buying property with little or no money down, thanks to FHA, are investors and well-off people who could have come up with more equity.
posted by Sid Cottingham | 8:24 PM
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