For What It’s Worth

FHA now lending on no-money down million dollars homes and everybody wants one. What could possibly go wrong?

SAN FRANCISCO — In January, Mike Rowland was so broke that he had to raid his retirement savings to move here from Boston.

A week ago, he and a couple of buddies bought a two-unit apartment building for nearly a million dollars. They had only a little cash to bring to the table but, with the federal government insuring the transaction, a large down payment was not necessary.

“It was kind of crazy we could get this big a loan,” said Mr. Rowland, 27. “If a government official came out here, I would slap him a high-five.”

In its efforts to prop up a shattered housing market, the government is greatly extending its traditional support of real estate, including guaranteeing the mortgages of middle-class and even upper-class buyers against default.

In 2007, the government did not insure a single mortgage in this city, one of the most expensive in the country. Buyers here, as well as in Manhattan, Santa Monica and every other wealthy area, were presumed to be able to handle the steep prices. They were correspondingly expected to hefty down payments on their own.

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While the F.H.A. is certainly strengthening the high-end market in the Bay Area by prompting more sales, there are growing concerns that it might become a destabilizing force.

Kenneth Donohue, inspector general for the Department of Housing and Urban Development, the parent agency of the F.H.A., said the higher loan limits were increasing the potential risk to the F.H.A. Last week, the agency said its cash reserves had fallen below their Congressionally mandated minimum because of the large volume of foreclosures.

“If one of these higher-limit loans fail, that’s equivalent to two or three cheaper loans,” Mr. Donohue said. “You have to ask yourself, was the F.H.A. ever intended to address these markets?”

He sees another risk: larger loans will be a greater draw for those who want to commit fraud. That would exacerbate a problem already besetting the agency.

Even some San Francisco agents who are doing F.H.A. deals worry about the long-term consequences. Real estate commissions are 6 percent. If the value of a property were to hold steady, a seller who put down the F.H.A. minimum would suffer a loss after fees. And while the Bay Area has traditionally been an excellent investment, the last few years have proved a big exception.

“Is this going to be the next wave of the housing downturn?” asked Eileen Bermingham, an agent with Pacific Union. “With such a minimal down payment, how do we make sure people don’t get in over their heads?”

The F.H.A. commissioner, David H. Stevens, said recently that its loans were relatively safe because the buyer was required to live in the property. They “are for shelter. They aren’t speculative-type investments,” Mr. Stevens said.

But the idea of a house as an investment dies hard. Mr. Bedar, Mr. Rowland and the third partner in their property, Jordan Kurland, are all in the technology field, but their dreams of wealth do not feature stock options.

“We’re banking on real estate,” said Mr. Kurland, 24. “Everyone expects prices to keep going up.”

Mr. Kurland and Mr. Bedar, who are employed full time, are the buyers of record. Mr. Rowland, a freelancer, will have his interests protected by a legal agreement.

Their building, for which they paid $963,000, is on a quiet street in the up-and-coming Hayes Valley neighborhood, close to fashionable restaurants they have already been trying out. The friends plan to live in the bottom unit and rent out the top. Thanks to rock-bottom interest rates, none of them will pay much more than a thousand dollars a month. “Everyone should have the chance to do this,” Mr. Kurland said.

Everyone may get a chance.

A few weeks ago, Congress extended the higher lending limits for another year. Representative Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee, said in an interview that he planned to introduce legislation next year raising the maximum F.H.A. loan by $100,000, to $839,750.

His bill would make the new limits permanent.