President Bill Clinton's fiscal 2001 proposed budget calls for substantial increases in two areas affiliated with the mortgage industry, the Federal Housing Administration and the Office of Federal Housing Enterprise Oversight. Both departments are pleased with Clinton's suggestions.

Under the FHA portion of the budget, Clinton is calling for an increase in the FHA loan limit to be 100% of the conforming-loan limit, which currently is $252,700. The current FHA limit in high-cost areas is $219,849. According to the budget document, "Raising the FHA loan limit to 100% of the Fannie Mae/Freddie Mac conforming limit will help approximately 55,000 families purchase their first homes, especially large families and families in high-cost areas."

Also, the fiscal 2001 budget seeks to have Congress grant approval to expand the FHA's insurance of hybrid 3/1, 5/1 and 7/1 adjustable-rate mortgages. Currently, the FHA is only able to insure one-year ARMs.

Clinton's budget is also seeking a 33% increase in funding for OFHEO, the safety and soundness regulator for Fannie Mae and Freddie Mac. Clinton has proposed expanding OFHEO's operating budget to $25.8 million, up from $19.5 million for fiscal year 2000 and $16 million for 1999. OFHEO's director Armando Falcon has requested $26.8 million, an additional $970,000 more than Clinton's proposal.

Perhaps what is most intriguing about the new budget is not that the increase is so large compared with last year's, but that Falcon has hinted that such large increases will not be necessary in the future. "If Congress approves the full budget request, I do not anticipate requesting similar increases in the near future," he said.

The large increase has been attributed to the explosive growth of the two government-sponsored enterprises over the last few years. "To ensure they are operating in a safe and sound manner as required by Congress, OFHEO needs more resources to keep pace with extraordinary growth," said Falcon.

The additional increase in Falcon's request to the Office of Management and Budget (OMB) is to hire six additional full-time examiners, bringing the total to 124 full-time employees. "Also needed is additional expertise to further strengthen our examination and understanding of the enterprises' growing use of automation as a risk management tool," Falcon said in a letter to OMB. Clinton's proposal has suggested the total be 118 full time employees.

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