FHA insurance gets House reprieve


Easing fears that congressional budget slashing would halt ++ efforts to build and renovate affordable apartments in Maryland over the next few years, lawmakers partially restored funding to a federal housing program late last week.

The House voted Thursday to retain Federal Housing Administration mortgage insurance for multifamily housing, a turnaround from an earlier bid that threatened the construction, renovation or refinancing of up to 21 privately owned projects with more than 4,000 market-rate apartments.

Owners and developers of those projects in Baltimore City and Howard, Harford, Baltimore, Cecil and Washington counties had applied for FHA insurance to proceed, said Ina B. Singer, director of multifamily housing for the Department of Housing and Urban Development in Baltimore. FHA insurance guarantees mortgage lenders against loss.

But as Congress makes spending cuts for the next fiscal year toward the Republican goal of balancing the budget, FHA multifamily mortgage insurance has come under attack.

A House appropriations subcommittee had voted to eliminate what is known as credit subsidy, which provides additional funding to help cover the government's anticipated liability in cases where the cost of a mortgage default exceeds both the property value and insurance premiums paid by borrowers. An amendment approved Thursday restored $70 million to the program -- less than half the current amount.

"There's a good likelihood we'll be able to do most of the projects in the pipeline," Ms. Singer said Thursday. "It depends upon what the national demand is."

Most new multifamily construction projects and renovations rely on FHA mortgage insurance, said Dee Lockitt McClure, vice president of First Maryland Mortgage Corp., which makes FHA-backed loans. Unlike commercial banks that offer construction loans with permanent financing for three to five years, FHA backs fixed-rate construction loans that revert to permanent financing for 40 years. Private insurers back only the mega-deals, while most banks won't insure construction loans for apartment builders without adequate credit.

Between 1990 and 1994, Ms. McClure said, 80 percent to 90 percent of all privately owned apartment construction in Baltimore and the five surrounding counties -- not including "luxury" developments -- was insured through FHA. Banks insured the rest.

A slowdown in multifamily housing development would hurt the local economy, reducing housing for working-class families and jobs in the construction trades, said Josh Fidler, president of Chesapeake Realty Management, which owns and manages 4,000 multifamily units. Reducing credit subsidies for even a year could keep builders off the job much longer, since it can take up to seven years to start building once land is purchased.

"People make decisions today based on the availability of financing down the road," he said. "If you interrupt the pipeline today, what you're really doing is dooming the process for the next decade."

The FHA multifamily program has come under fire because of losses in the early 1980s, in part from a co-insurance program that allowed private companies to underwrite mortgages, many of which defaulted. But the agency no longer insures the high-risk projects with subsidized rents and mostly low-income tenants that had incurred heavy losses in the past, said James S. Kelly, a HUD economist.

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