Magazine article American Banker

GAO: Insurers Would Reject Two-Thirds of FHA Borrowers

Magazine article American Banker

GAO: Insurers Would Reject Two-Thirds of FHA Borrowers

Article excerpt

A study from the General Accounting Office has found that two-thirds of FHA-insured borrowers in 1995 would have been rejected by private insurers for failing to meet loan-to-value and qualifying ratios.

Among low-income and first-time homebuyers, the percentage was even higher. Seventy-seven percent of first-time homebuyers who took out FHA loans, and 85% of low-income FHA borrowers in 1995 would not have met those standards, the report said.

The GAO's findings are likely to figure into next year's congressional debate on the role of the Depression-era housing program, which has insured 24 million mortgages since its inception, including 570,000 last year.

Once a dominant force in the market, its share of mortgages has shrunk since 1990. In 1994, only 15% were insured by the FHA.

Still, private insurers complain that it competes unfairly with their programs, and they have joined with Republicans to trim it, perhaps by confining it to low-income borrowers. They also want HUD to trim its insurance coverage from 100% of the loan amount to a smaller number.

Rep. Rick Lazio, R-N.Y., who requested the GAO report, has promised to introduce legislation to rewrite the FHA program next year. He leads the House Banking subcommittee on housing and community opportunity.

But the Mortgage Bankers Association, whose members write most FHA backed loans, is hailing the report's conclusions as a victory for their side.

"It does validate our fundamental belief that FHA serves homebuyers who are not adequately served by the private sector," said Brian Chappelle, senior staff vice president of corporate relations. …

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