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FHA Finances

June 21, 1992

The National Assn. of Realtors takes issue with Kenneth R. Harney's column "Congress Considers Raising FHA Loan Limit" (June 7).

Harney's point that the auditing firm of Price Waterhouse has found the principal insurance fund that backs FHA home mortgages to be insolvent is inaccurate. The single-family mortgage insurance fund has positive government equity. I don't deny that the fund lost money in the 1980s. However, technical insolvency requires zero cash--clearly this is not the case and will not be the case this century.

Recent losses to the fund largely are the result of FHA being left as the dominant home financing source in weak economic areas--markets abandoned by the private mortgage insurance industry. Despite the economic problems and increased claims on the single-family insurance fund, the existing reserves and equity have been adequate to respond to the problem with no additional revenue needed.

The contention that FHA is a "mini-S&L crisis already in progress" is grossly inaccurate. Even the U.S. Department of Housing and Urban Development told the Senate in testimony that drawing parallels between FHA and the federal Savings and Loan Insurance Corp. debacle is "irresponsible." FHA's greatest losses came in the multifamily program, which has been discontinued.

We believe that a higher mortgage insurance limit would strengthen the FHA portfolio by making it more diverse. The program must be able to insure loans in San Francisco and New York so it can continue to insure loans in Denver and Houston. keeping the program unusable in thriving markets would pose a far greater risk to the fund for the future than making an adjustment to its loan limit provisions.

Dorcas T. Helfant


National Assn. of Realtors

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