Impact of FHA Loan Policy Changes on Financial Losses and Homebuyers

T-RCED-90-95: Published: Jul 10, 1990. Publicly Released: Jul 10, 1990.

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GAO discussed the impact of proposed policy changes to the Federal Housing Administration's (FHA) Mutual Mortgage Insurance (MMI) Fund on the Fund's cash position. GAO found that: (1) raising the mortgage ceiling to 95 percent of a state's median house price would have the greatest positive effect on the Fund's cash balance; (2) raising the mortgage ceiling will also generate the most new business for FHA, thereby increasing the government's financial risk in the form of additional insurance-in-force; (3) the proposed policy change to eliminate the financing in FHA-insured mortgages could help improve the Fund's soundness, but could also mean that a number of homebuyers may be forced out of the market; and (4) the losses being incurred by the MMI Fund do not result only from economic factors, but from poor management and waste, fraud, and abuse.

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