Mr. Chairman and Members of the subcommittee:
I am Carl A.S. Coan, Jr. and I appear here on behalf of the National Housing Conference for which I am a Director and a member of the Executive Committee. We appreciate this opportunity to present our views on the FHA Multifamily Housing Mortgage Insurance Program.
NHC was founded in 1931, three years before the National Housing Act became law. During all these years, NHC has supported FHA and its various programs to help Americans become better housed. These programs have been essential in helping to achieve the significant progress that has taken place over the past 70 years. Yet much still needs to be done.
NHC’s research affiliate, the Center for Housing Policy, last month released a study, entitled "Paycheck to Paycheck: Working Families and the Cost of Housing in America." This study followed up on the Center’s report of last year, entitled "Housing America’s Working Families." Both studies found that over 13 million families in 1997, and again in 1999, had critical housing needs, i.e., they either spent more than 50% of their incomes on housing or they lived in a seriously substandard unit. While many of these families were elderly or on welfare or had only a marginal attachment
to the labor force, in 1997 22%, about three million households, were working families earning between $10,700 a year (the equivalent of a full-time job at the minimum wage) and 120% of the area median income, a figure well in excess of $50,000 in some of our more expensive urban areas. In 1999, this percentage increased to 28%, and the number of households to over 3.7 million. These are the families the FHA multifamily unsubsidized programs were designed to serve.
Starting with the original 207 program as it was revised in 1938, then through the 608 program enacted during the Second World War, next through the 221(d)(4) program enacted in 1961 and various permutations since then, the FHA multifamily programs have always been aimed principally at providing housing for families of modest income. And because that goal was achieved so successfully in many cases, these programs have frequently been called upon, with the addition of a subsidy element, to provide housing for low-income families, i.e., those earning 80% or less of the median income in most cases. The basic structure of the unsubsidized multifamily program was the foundation upon which the subsidy assistance was added, serving as the vehicle for the provision of hundreds of thousands of housing units for low-income families.
During this over 60-year period, the mortgage insurance premium charged on multifamily mortgages has for the most part been ½ of 1%. This premium has generally been adequate to cover the losses incurred by the mortgage insurance funds established in support of these programs. In the early years of FHA, each program, such as 207 or 220 or 221, had its own mortgage insurance fund. This became cumbersome and Congress in 1965 combined into one fund, the General Insurance Fund, all of the FHA programs except for the basic 203(b) single-family and the cooperative programs.
There also was established in 1968 a Special Risk Insurance Fund, in recognition of the fact that some of the programs being carried out under the aegis of FHA were designed to take a greater risk in order to accomplish such goals as housing low-income families or making housing available in older, declining urban areas. While the same mortgage insurance premium was collected with respect to these undertakings, it was recognized up front that the premium would not be sufficient to cover anticipated losses and that Congress would need to appropriate funds on occasion to make up for shortfalls in the Special Risk Fund.
While the Special Risk Fund still exists, for budgetary purposes it has been lumped with the General Insurance Fund and there is little, if any, distinction between the two. While erasing that distinction (as was the distinction between the various separate funds erased with the establishment of the General Insurance Fund in 1965) may make it easier for the accountants to keep their books, it should not be used as one of the bases for increasing the mortgage insurance premium as the Administration announced it intends to do as of August 1. And it might be reasonable to consider shifting some of the riskier insurance programs now covered by the General Insurance Fund into a revitalized Special Risk Fund.
The FHA multifamily programs carry out an important societal responsibility of our government, and they have done that successfully over the past 60-some years. The efforts to meet that responsibility should not be lessened now through a 60% increase in the mortgage insurance premium. This increase will not stop the FHA multifamily housing programs, but it will certainly limit the programs’ ability to serve those of modest income that the programs were designed to serve.
The proposed increase in the mortgage insurance premium is like a new tax being added on to the rent of the many thousands of tenants who need the modest-cost, decent housing these programs are designed to provide. There is no question that this increase will be passed through to the tenants or the housing won’t be built. In either case, this new tax will decrease the ability of the FHA multifamily programs to serve as broad a range of the population as possible.
Of all the arcana perpetrated by our government on its people, probably nothing is quite as arcane as the so-called credit subsidy calculations carried out with respect to the FHA multifamily insurance programs. As I understand it, they posit the incurrence of costs far in the future, based on the unlikely replication of the circumstances and occurrences of the past. They seem more designed to frustrate the ability to meet our nation’s housing needs, rather than to facilitate meeting those needs. Whether the calculations made under the premises established by OMB are accurate, neither I nor probably anyone else outside of OMB can really understand. What we can understand, however, is that as a result of the credit subsidy concept, we have had several stoppages over the last eight years in the production of multifamily housing for those whose housing needs cannot be met without the support of the FHA mortgage insurance.
This is inexcusable, and even more inexcusable is the refusal of OMB to allow HUD to use the $40 million made available last year in an emergency supplemental. OMB has taken the position that no emergency exists and therefore it could not meet the requirements spelled out in the legislation for releasing that $40 million; we believe that an emergency did and does exist because of the continued need for decent housing in markets which cannot otherwise be adequately served.
One of the problems that has bedeviled the FHA multifamily insurance programs in recent years has been the failure to increase the maximum per unit mortgage limits since the last increase in 1992. This at least the Administration has recognized and has urged that Congress enact a 25% increase in those limits. NHC strongly supports that increase and urges this Subcommittee to move as soon as possible the legislation providing for that increase. We suggest, however, that at the same time it might be appropriate to direct HUD to restore the maximum ½% mortgage insurance premium and to find ways to avoid the frequent interruption to FHA multifamily production that have occurred over the last eight years as a result of the institution of the credit subsidy concept.
Mr. Chairman, I should like to thank you for this opportunity to present our views and our concerns and I would be pleased to answer any questions that you may wish to pose.
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