The primary mortgage insurers are private mortgage insurers (PMI), the Federal Housing Administration (FHA), and the U.S. Department of Veterans’ Affairs (VA). VA’s single-family mortgage guaranty program does require federal funds each year. Objectives, Scope, and Methodology

To obtain more information about the role of FHA’s single-family program in today’s housing finance system, the Chairman of the Subcommittee on Housing and Community Opportunity, House Committee on Banking and Financial Services, asked us to provide information on (1) the terms of products available through FHA’s Section 203(b) program in comparison with the terms of products available through the programs of the PMIs and VA; (2) FHA’s share of the home purchase mortgage market, the characteristics of home buyers using FHA mortgage insurance in comparison with other home buyers, and the portion of FHA borrowers who met certain qualifying ratios for private mortgage insurance; and (3) other federal programs and activities, besides FHA and VA, that promote affordable homeownership. FHA’s maximum loan amount for a single family home is legislatively set at the lesser of 95 percent of the median house price in the area or 75 percent of the conforming loan limit for Freddie Mac. Table 2.3 summarizes the housing-expense-to-income ratios and total debt-to-income ratios acceptable to the three organizations. In addition, up to 95 percent of the closing costs on an FHA loan can be financed through the mortgage. Of these loans, FHA insured 15 percent (686,487). 3.7). For the Federal Home Loan Banks’ Affordable Housing Program and the HOPE 3 program, all homeowners assisted must have incomes no greater than 80 percent of the area’s median income. The lender selects a mortgage insurer from those that are approved by the GSEs.
Why GAO Did This Study

Pursuant to a congressional request, GAO provided information on the Federal Housing Administration's (FHA) role in helping people to obtain home mortgages.

What GAO Found

GAO found that: (1) FHA and Department of Veterans Affairs (VA) programs allow borrowers to make smaller downpayments and accumulate higher total debt to income ratios than private mortgage insurers (PMI); (2) FHA programs finance closing costs as a part of the mortgage, insure loans up to $155,250, and provide full insurance coverage to lenders; (3) FHA insured 15 percent of the single-family housing market in 1994; (4) FHA insures low-income homebuyers with incomes no greater than 80 percent of the median income of the metropolitan statistical area; (5) FHA insures more home purchase mortgages than PMI or VA; (6) two-thirds of FHA approved loans would not have qualified for PMI; (7) the maximum loan amount for a FHA single-family home mortgage is the lesser of 95 percent of the median house price or 75 percent of the Federal Home Loan Mortgage Corporation's loan limit; (8) the federal government promotes affordable homeownership through several HUD and other Federal programs; (9) these programs require federal funds and assist homebuyers in combining their assistance with FHA mortgage insurance; and (10) FHA programs promote homeownership among home buyers that are typically underserved by other agencies and PMI.