An amendment to the housing appropriations bill would lower FHA down-payment terms for upper-income home buyers. This is privatization in reverse. It would move more affluent home buyers out of the private insurance market and under the umbrella of government mortgage protection.
In many ways, the FHA is to the housing industry what Medicare and Medicaid are to health care: the 800-pound gorilla that is slowly trying to squeeze private competitors out of the marketplace.
From its inception during the New Deal, the FHA was meant to help first-time and moderate-income home buyers. Higher-income buyers, if they need insurance at all, can afford unsubsidized private mortgage coverage. If they can’t afford the insurance on the home without a taxpayer subsidy, they probably shouldn’t be buying a house in the first place.
But recently, the FHA has moved aggressively into upscale housing markets. Thanks to relentless pressure from the housing lobby, Congress now allows the FHA to insure mortgages of up to $160,950 in pricey areas like New York and California, up from $67,500 in 1980.
The Clinton administration and the FHA’s housing industry supporters want to lift the cap to well over $200,000. How many low- or moderate-income families can afford a $200,000 house? Since there is no income test to qualify for an FHA subsidy, technically even Michael Jordan could get an FHA-insured loan.