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October 24, 2014

Commissioners Come Together in Support of FHA

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Commissioners Come Together in Support of FHA

Lawmakers in Congress who are raising alarms about the FHA needing a bailout and supporting legislation to change the way the agency does business are missing the indispensable role the agency played in protecting the housing market from a far worse collapse during the downturn.

That’s the consensus of the current and two past FHA commissioners who spoke at the REALTORS® Conference & Expo Sunday, Nov. 10.

FHA Commissioner Carole Galante said the agency took its first “mandatory draw” on U.S. Treasury funds a month ago because of bad loans it insured during the downturn, a policy decision made at the time to shore up the mortgage market when no other entity was making loans in any significant amount. “We did what we needed to do,” she said.

That first-ever drawdown was for $1.7 billion, which will be added to a reserve account that is already flush with $48 billion, far more than the FHA needs to pay claims. But the agency is required to keep 30 years’ worth of reserves for all of the insurance it has in force, plus another 2 percent buffer above that. “We don't need the draw to pay claims,” she said. “The money fills the reserve account.”

Galante said the FHA’s book of business from loans it has made in the last few years is the strongest it’s ever been, and the agency is seeing its financial position strengthen even more by the steady rise in home values. It’s also raised its mortgage insurance fees several times since it was given that authority in 2010 and improved its ability to go after bad lenders, so Galante says she feels confident about the agency’s eventual return to health.

Both Brian Montgomery, FHA commissioner from 2005 to 2009, and John Weicher, his predecessor from 2001 to 2005, praise the agency for playing the counter-cyclical role it did during the crisis.

“The FHA was not part of the problem,” said Weicher. “It became part of the solution when the roof caved in. It bothers me when people talk about it as being part of the problem as much as Fannie Mae or Freddie Mac.”

Montgomery, who, like Weicher, was appointed by a Republican president, said he opposes Republican-backed legislation that would limit whom the FHA can help and set requirements for down payments and other underwriting matters. “It pains me to see [some lawmakers] interested in political gain fail to see the value of the agency,” he said.

Weicher said he also opposes the Protecting America’s Taxpayers and Homeowners Act.

Galante says the FHA by this point has the right policies in place for balancing protection of the agency’s insurance fund with helping borrowers, so she doesn’t see additional fee hikes being needed in the near term. But she does want to improve the agency’s rules so lenders will feel confident they can ease credit “overlays” that they’ve imposed to limit who can get FHA financing. These overlays are underwriting restrictions that go above and beyond what the FHA requires.

Lenders have said they need the overlays to ensure the FHA won’t come after them for making loans to borrowers who shouldn’t have gotten them. Galante said improvements to the rules would clarify what the FHA will hold lenders accountable for and what it won’t.

Galante also said she’s heard concerns from NAR members and others that too few condo projects are approved for FHA financing. The agency is working on rules that would address these concerns, she said, but the changes aren’t something the agency can turn around quickly.  The fact is, “we have condo projects with lots of problems, so have to have controls over what loans the FHA insures,” she said. “We’re working hard on that, but it will take some time."

By Robert Freedman, REALTOR® Magazine

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