our record to date. Our share of high-ratio insured loans under $50,000 ranges between 30 percent and 40 percent of the total market for these loans. See Attachment F. We recognize that there is more work to be done, but we believe we are off to a good start.

FHA's Record MICA believes that as Congress addresses the reforms to FHA, it must also examine who FHA is serving and how it can be better directed to low- and moderate-income people. The recently released data collected under HMDA indicates that FHA is not doing an adequate job of serving low-income people. First, the HMDA data on income of loan applicants shows that over 60 percent of the applications from low-income borrowers (i.e. borrowers with less than 80 percent of MSA median income) went to conventional loan sources as compared to government-backed sources. Likewise, 58 percent of moderate-income applicants (i.e. having between 80 percent and 100 percent of MSA median income) applied for conventional loans as compared to government-backed loans.

Second, even though we would expect government-backed mortgages to appeal to individuals buying homes in low- and moderate-income areas (a census track where the median income is less than 80 percent of the median income for the entire MSA), we find instead that these low- and moderate-income areas are being primarily served by conventional mortgage entities. The HMDA statistics show that 70 percent of the approved loans reported in low- and moderate-income areas were conventional loans and only 30 percent were government-backed loans (primarily FHA).

More alarming is the overall decline in the number of FHAinsured loans designed to serve low-income people. Attachment G shows FHA mortgages with a 3 percent down payment with values under $50,000 for the period from 1987 through 1991. The decline in these mortgages began in the first quarter of 1990, and continued throughout 1990 and 1991.

It is incorrect to link the decline in volume of these mortgages which began in early 1990 to the FHA reforms which took effect in the third quarter of 1991. Interestingly enough, the first quarter of 1990 was when the higher FHA mortgage ceiling of $124,875 first took effect. In fact, if you look at these mortgages as a percent of total 203 (b) mortgages, you find that they actually increased slightly from the third to fourth quarter of 1991.

The number of FHA mortgages under $50,000 also has declined in the last two years. These mortgages as a percentage of total FHA mortgages have been declining since 1990 (Attachment H). Again, the 1990 increase in the FHA ceiling comes closer to explaining this two-year decline than do the FHA reforms.

Targeting FHA - During the debate over NAHA, MICA supported an amendment which would have ensured that FHA served low-income families. It would have targeted FHA by income. The amendment was

sponsored by Congressman Kanjorski and would have limited participation in the FHA program to borrowers whose incomes are the lesser of 115 percent of area median family income or 125 percent of the state-wide median income. No direct limits would have been placed on the size of FHA-insured loans. Congressman Kanjorski offered the amendment during the markup of NAHA, but ultimately withdrew it.

MICA still supports targeting FHA by income. However, any indexing for FHA's loan limits would be worth studying as long_as it ensures that FHA is directed to low- and moderate-income people. Specifically, MICA supports the concept of indexing FHA's limits to an index that is similar to the constant quality index. While we have not developed a particular index, we believe HUD should be given the task of developing one. Because house prices change across the country, the index should allow the loan limits to vary by location. In addition, the index should permit FHA's loan limits to both rise and fall, in order to more accurately reflect the market for homes.

Finally, and most importantly, MICA believes that if the index developed under the principals outlined in the previous paragraph, result in FHA's loan limits rising above the present limit of $124,875, that only first-time home buyers should have access to FHA-insured loans at that higher limit. First-time home buyers have the most difficulty getting into homes and this is where the government's resources should be devoted. Using a constant qualitytype index and raising, as well as lowering, the loan limits will ensure that changes in the limits mirror what is happening in the market.

The mortgage insurance industry is ready to offer its expertise and assistance in helping Congress and the Administration deal with the problems facing FHA. We want to ensure that FHA is there to serve future homebuyers.