Mortgage Credit Enhancements:
Options for FHA in Meeting the Need for Affordable Multifamily Housing
T-RCED-92-52, Apr 3, 1992
GAO discussed legislative or administrative actions that could improve the availability of mortgage financing for affordable multifamily housing through credit enhancements. GAO noted that: (1) the Federal Housing Administration (FHA) has historically been the federal government's principal provider of credit enhancements, but its insuring of mortgages has declined sharply in recent years from a high of 35 percent of mortgages in 1982 to about 6 percent in 1990; (2) two credit enhancement options, delegate processing and delegated underwriting, provide insurance on individual loans, while two other options, primary bond insurance and bond reinsurance, provide insurance on pools of loans; (3) under all four options, FHA would assume the unexpected losses on loans they originate based on their historical loan performance and federal government insurance would cover losses not covered by FHA; (4) if any of the credit enhancement options are adopted, legislation requires that the impact on the federal budget be computed to allow the costs of credit programs to be more easily compared with the costs of other federal spending; (5) in order to develop a more active secondary market in affordable multifamily housing, financial institutions need access to information that will enable them to quickly and cheaply evaluate, price, and manage risk; and (6) the extent that employing credit enhancements would expand the multifamily secondary market and lower the cost of affordable housing depends on the details of how the policy options are implemented and the availability of other subsidies needed to make such projects financially viable.