Budget May Try to Raise FHA Loan Costs

WASHINGTON —  President Reagan’s fiscal 1988 budget will include proposals that would make it more expensive for middle-class families to obtain federally backed home mortgages, an industry group disclosed Friday.

The Mortgage Bankers Assn. of America, citing confidential advance budget documents, said Reagan’s proposals--scheduled to be released Monday--would roughly double the amount of cash home buyers would be required to pay for mortgages backed by the Federal Housing Administration.

Deficit Forecast

Meanwhile, the Congressional Budget Office released a new forecast of future federal budget deficits which suggested that the estimated $42 billion in cuts and other savings that will be proposed by the White House for fiscal 1988 would fall about $19 billion short of the Administration’s $108-billion deficit-reduction target.

In a letter to congressional budget committee chairmen, CBO Director Rudolph G. Penner predicted also that the federal deficit this year would drop to $174.5 billion. The deficit hit a record $221 billion in the fiscal year that ended last Sept. 30.

The White House estimate, which is based on different economic assumptions, similarly projects that the deficit will be $173 billion this year.

In contrast, the White House and CBO differ on their projections for 1988. The CBO predicts that, without any further cuts or savings, the fiscal 1988 deficit would be $169 billion, while the White House forecasts a $150 billion deficit.

CBO’s projections are used by Congress in determining how much in additional spending cuts and other measures it needs to adopt to meet its own deficit goals. The difference between the Administration’s and CBO’s forecasts is not unusual. The White House generally adopts relatively optimistic economic projections, and the CBO tends to be more conservative.

$20 Billion Short

CBO’s forecast shows that the federal government is likely to fall about $20 billion short of meeting the $154 billion deficit target for fiscal 1987 called for by the Gramm-Rudman budget-balancing law. When Congress adopted its spending plan last year, the CBO had estimated that it would meet that goal.

Because the key enforcement mechanism of Gramm-Rudman was declared unconstitutional by the Supreme Court, Congress is under no obligation to make up the difference, however.

Compared to its forecast last August, the CBO projection shows a modest deterioration in the budget outlook. Revised economic assumptions, based on updated statistics on economic growth and inflation, added $10 billion to the projected deficit for 1987 and added yearly amounts ranging up to $25 billion to the deficit by 1991.

New technical estimates of spending also increased the deficit, with higher than expected federal medical care costs adding $7 billion a year in 1991 and additional farm subsidies costing $6 billion more than anticipated in the 1988-1991 period.

As a result, the deficit would fall to an estimated $109 billion in 1991 and $85 billion in 1992 in the absence of further cuts in spending or additional revenue-raising measures. Earlier, the CBO had said that it expected the deficit under current budget policy to decline to $69 billion by 1991.

The new forecast assumes that the economy will grow at an annual rate of about 3% through the end of 1988, with inflation predicted to rise to about 4.5% in 1987 and 1988.

Mortgage Changes

According to the mortgage bankers’ group, Reagan’s budget will call for several changes to current home mortgage programs that are likely to face stiff opposition in Congress. These include:

--Requiring families with incomes over $40,000 to pay at least 5% down on all new FHA loans. Currently, home buyers may make down payments as low as 3% to cover the first $25,000 of a loan, with the 5% figure required on the amount above that level.

--Eliminating FHA mortgages for second homes or investment property.

--Preventing certain closing costs, including the 3.8% mortgage insurance premium, from being financed with proceeds from the loan. Instead, the costs would have to be paid separately at the time the loan is processed.

--Adding an additional fee for Government National Mortgage Assn. financing of FHA and VA loans. This would add roughly $187 on a typical $70,000 loan.

--Boosting the current 1% fee on Veterans Administration loans to 2.5%.