Impact of FHA Loan Policy Changes

GAO discussed the impact of proposed policy changes on the Federal Housing Administration's (FHA) Mutual Mortgage Insurance (MMI) Fund, focusing on the effects of: (1) increasing FHA mortgage ceiling limits; (2) reducing down payment requirements; and (3) increasing adjustable rate mortgage (ARM) availability. GAO noted in its econometric projections that, given favorable economic conditions: (1) increasing the mortgage loan ceiling in accordance with national average annual house prices would generate an estimated $2.5 billion in MMI Fund revenues by 1998; (2) increasing the mortgage loan ceiling to 95 percent of each state's average house price would result in revenues totalling $7.9 billion by 1998; (3) lowering down payment requirements might increase homeowner opportunities, but would make loan defaults and MMI Fund losses more likely; and (4) increasing ARM availability would expand homeowner opportunities, but the extent that borrowers defaulted on loans would depend on variable mortgage interest rates. GAO also noted that, assuming less favorable economic conditions, the MMI Fund would lose $2.5 billion under the national average option and $1.8 billion under the 95-percent-of-state-average option by 1998. GAO also noted FHA management deficiencies in its: (1) monitoring of mortgage program activities assigned to the private sector; (2) correction of previously identified problems; (3) monitoring of field and regional office activities; and (4) application of internal cash management controls.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

Director: John M. Ols Jr Team: General Accounting Office: Resources, Community, and Economic Development Division Phone: (202) 512-7631