Proposal to Sell FHA to Private Sector Assailed

WASHINGTON —  The leak of an Administration proposal to sell the Federal Housing Administration to private bidders aroused passionate opposition Saturday as foes compared the idea to trying to peddle the Washington Monument.

A Reagan Administration official confirmed a report in Saturday’s editions of the New York Times that confidential fiscal 1987 budget documents were submitted last week to Housing and Urban Development Secretary Samuel R. Pierce Jr., proposing to sell the FHA to “private bidders” in the “private sector” by the end of 1989. The official spoke on condition that he not be identified.

The proposal was developed by the Office of Management and Budget and has been tentatively approved by President Reagan, the newspaper reported. The sale could not take place without congressional approval.

Agency Could Appeal

Pierce’s spokesman, Leonard Burchman, said Saturday that department officials will have no comment before Monday. The agency--nearly half of whose 11,400 employees work for FHA or on FHA projects--could appeal the OMB proposal.

Federal agencies’ first appeals of their budget-cutting orders will be submitted to Reagan on Wednesday, another Administration source said, and the appeals process is expected to be completed by Christmas.

Reagan’s budget will not become public until it is submitted to Congress in early February.

Opponents Saturday vowed to fight the FHA proposal in Congress.

“It’s nuts. Why doesn’t he sell the Washington Monument?” New York City Mayor Edward I. Koch said. “We haven’t seen this kind of turning your back on low-income people since Marie Antoinette.”

Rep. Barney Frank (D-Mass.) called the proposal “appalling but not surprising.”

“We have a serious housing crisis in many areas, and it is being exacerbated by Reagan Administration policies,” said Frank, who is chairman of the House Governmental Operations subcommittee on housing and unemployment. He predicted that Congress would not approve the plan.

The FHA is, in effect, a giant mortgage insurance company. Since it was founded in 1934 to offset economic hardships during the Depression, the agency has provided mortgage insurance to 51 million Americans, many of whom might not otherwise have been able to afford homes. It produced a $9.4-million profit last year.

Other points in the Reagan plan, the Administration official said, include:

--Canceling $6.2 billion of the $9.9 billion that Congress recently appropriated for housing for low- and moderate-income people.

--Requiring state and local authorities to pay half the administrative costs of the main federal program giving rental assistance to the poor. The U.S. government now pays all of those costs.

Inflation Adjustment

--Ending the inflation adjustment for federal housing subsidies.

--Asking Congress to allow the use of Social Security numbers to verify that people living in federally subsidized housing meet income requirements.

--Ending federal grants to subsidize construction or rehabilitation of rental housing in low-income and moderate-income neighborhoods.

--Freezing federal subsidies for operating local public housing projects at 1986 levels.

--Ending urban development action grants, designed to assist distressed urban areas.

Peter H. Bell, executive director of the Washington-based National Housing Rehabilitation Assn., called the FHA proposal “outrageous.”

“I can’t fathom them getting this proposal through Congress. But we’ll certainly make sure they don’t,” said Bell, whose organization, founded in 1970, monitors government housing policy.

Major Changes Seen

Robert W. Maffin, executive director of the National Assn. of Housing and Redevelopment Officials, predicted that the package would not clear Congress “without some major changes.”

“The elderly, the young, the farmers, there are literally hundreds of groups of people in the United States who need help in securing decent housing,” he said.

Paul Scheiber, executive director of the Public Housing Authorities Directors Assn., described the plan as “miserable. I think it’s insensitive. I think it’s penny-wise and dollar-foolish.”

“It is criminal to have a huge block of public housing without providing enough to repair it,” Scheiber said, referring to the proposal to cut subsidies. His Washington-based organization, founded in 1979, represents 600 public housing authorities throughout the United States.