WASHINGTON -- President Reagan Wednesday proposed to end one of the nation's most popular federal housing programs for the middle class -- the long-running FHA mortgage insurance program for half a million private home buyers a year.
Reagan also proposed selling other federal insurance programs to private business, including the Small Business Administration's business disaster loans.
The Federal Housing Administration runs the largest federal loan guarantee program, accounting for about 87 percent of mortgages insured. Under the program, single-family mortgages of up to $90,000 can be insured with as little as a 3 percent down payment.
The program has been one of the primary vehicles for first-time and moderate-income buyers to gain homeownership. The government estimated it will underwrite mortgage insurance on 552,900 single-family and multifamily units in the coming fiscal year.
In his proposed fiscal 1987 budget, Reagan sought a number of changes in the FHA, including eventual transfer of the FHA's function to private insurers.
Before that happens, however, Reagan wants to raise the premiums the FHA collects on insured mortgages of single-family homes from 3.8 percent to 5 percent to compensate for recent high default rates.
Some analysts said they believe that would more than double the effective downpayment on an FHA-insured home.
Similar fee increases for Veterans Administration-insured mortgages - from the 1 percent to 2 percent currently charged to 3.8 percent by 1990 -- were proposed, although veterans with service-connected disabilities would be exempt from the fee.
'The premium increase will provide additional protection to the FHA insurance fund in the event of unanticipated losses brought about by slower appreciation in home prices, lower homeowner equity, and insurance of riskier mortgages' such as adjustable rate and graduated payment mortgages, the budget message said.
In addition, Reagan wants to put a ceiling of $40,000 on the income level of families assisted through FHA mortgages -- those homebuyers he said have 'the fewest options for purchasing a home.'
'FHA will cease making loans to investors and individuals purchasing a second home,' he said.
And he said that an effort to stem the high default rate would be made by requiring all 'upfront costs' of a home purchase to be paid in cash so that the buyer 'has some stake in the home.'
Behind those changes, however, looms an even larger one -- the desire to eliminate FHA's mortgage functions.
'In keeping with the goal of removing the federal government from activities that compete directly with the private market, the administration will review alternatives for the sale of FHA to the private sector.
'The private mortgage insurance industry that has developed in the United States over the last 28 years handles a larger portion of the market than does FHA and serves substantially the same clientele,' Reagan's budget said. 'Moreover, well-capitalized corporations appear interested in entering this market.'
The Reagan budget also proposed elimination of the SBA's small business disaster loan program 'because private insurance and federal flood insurance is available to cover losses and because the federal government should not provide assistance for losses resulting from normal business risks.'
Under the administration plan, the program would receive no funds in 1987, the existing portfolio of SBA disaster loans would be transferred to the Treasury Department which would sell them. The budget estimated the federal government would net $585 million by the change.
