Regulatory and Legislative Roundup

TUESDAY, MAY 6, 2008

The FHA has become a key player in the housing debate. We're the largest issuer of mortgage insurance in the country. We've been doing this for nearly 75 years. And our programs are critical to helping Americans keep their homes.

Simply put, we're part of the solution.

People are starting to take notice. FHA has become central to many of the legislative proposals on Capitol Hill. Reporters used to call us stodgy and "old-fashioned." After all, we asked borrowers to verify their income levels and prove they could pay off their debts. During the housing bubble, we were about as "cool" as a teenager's father asking for the car keys back.

But times have changed. Nowadays, "old-fashioned" is looking pretty good. And I want to thank the MBA for getting the word out about the benefits of FHA.

Even the media is starting to pay attention. The other day, the Wall Street Journal even gave me my first "dot-drawing."

Seriously, we welcome the attention. More than two years ago, we asked Congress to modernize the FHA, to bring it squarely into the 21st century. We asked for higher loan limits and flexible downpayment requirements so more families could qualify for prime rate financing.

Our bill passed the House twice and even the Senate twice, each time with broad, bipartisan support. But it never reached the President's desk. Now, we finally have a chance to get it done.

But we cannot take our eye of the ball. There are several proposals being considered on Capitol Hill. Some would all but federalize the nation's housing market. Others would make FHA the federal lender of last resort, a magnet for bad, ill-considered loans. Still others would saddle taxpayers with the bill for thousands of foreclosed properties, removing the incentive for lenders to offer workouts to allow families to keep their homes.

I believe that legislation to modernize the FHA, prevent foreclosure, and speed recovery of the housing market is long overdue. But it must follow certain principles.

The first principle is to give FHA the tools needed to price for risk-like every other financially sound insurance company.

The FHA is self-sustaining-almost unique in government. To ensure our continued solvency, we need flexible, risk-based premiums. This will enable more families to qualify for FHA, and to qualify more easily. We don't want to put taxpayers or low-risk borrowers on the hook for risky loans.

This is crucial at a time when lending standards have tightened and credit has become scarce-a major factor limiting demand for new housing.

I would note that FHA's customers are a good risk. These are hard-working families who pay their bills on time and deserve access to prime-rate financing.

There's another important benefit to pricing for risk. It would enable us to accurately reflect the marketplace.

Housing prices continue to fall. The Case-Shiller Home Price Index of 20 major markets fell 12.7 percent in February, the largest drop in its history. And yet, nationwide there is nearly a year's worth of unsold inventory out there. So prices still have a ways to go.

As RealtyTrac noted, the wrong kind of government action could "mask" the true extent of the slump and "extend the length of time it takes the market to recover." Distorting the marketplace will only delay recovery.

The second principle is to prohibit downpayment assistance from sellers or others who stand to benefit financially from the transaction.

Such loans are three times more likely to go into default or foreclosure as loans without downpayment assistance. That is unacceptable.

To allow this to happen would be to repeat the mistakes of the housing bubble. Back then, countless loans were issued by lenders without regard to the borrower's ability to pay it back. Standards were loosened. Shortcuts were taken. We know the end result.

So to be qualified to receive a loan, you must be qualified to repay that loan. Period.

I would ask the MBA to be an ally in our effort. You've paid very close attention to these issues. You've weighed the pros and cons. And I believe you share many of our views.

Now we need to get the word out. Far too many homeowners in distress still don't know about the FHA-even as hip as we are!

We are sending out more than 850,000 letters to homeowners whose rates are resetting. But you can help us reach even more. Studies show that in about half the cases of default, the borrower and lender did not communicate beforehand. This must change.

One of the most effective ways to communicate is through our HUD-approved housing counselors. We've got more than 2,300 on the ground and ready to go. Families respond more quickly to voices at the community level than to lenders. That is why we've increased the budget for housing counselors by 150 percent since 2001.

That's not all we've done.

Last August, President Bush introduced FHASecure. To date, it has enabled more than 180,000 at-risk families to refinance with FHA, saving homeowners an average of $400 a month. It has also enabled FHA to pump nearly $68 billion into the cash-starved housing market.

Last month, we announced new changes to FHASecure that will enable families to refinance if they went into default based on extenuating financial circumstances, such as job loss. This is a major concern. Next door in New Hampshire, the executive director of NeighborWorks Greater Manchester said he's seen an "alarming" increase in calls from homeowners who cannot keep up with their payments because of lost income.

All told, the changes would enable us to help a total of 500,000 homeowners by year's end.

This will complement FHA's already strong loss mitigation effort. Sixty-five percent of FHA borrowers who fall into serious default avoid foreclosure because of it.

In short, we aren't simply waiting around for Congress to finish its work. I have seen the devastation that foreclosure has done to families and communities. I have seen the reports of criminals setting up in vacant houses and pets left behind to starve.

So we are working to encourage homeowner responsibility, market clarity, and lender accountability. That is what works. And this is what we offer with FHASecure and FHA modernization. It's a targeted, responsible approach that pays for itself, not a taxpayer-funded bailout that would harm FHA.

The only long-term cure is a healthy, reality-based housing market. Bailing out the boat will not fix the leak.

We want Congress to get the message and send an FHA modernization bill to the President's desk now.

Thank you.


Content Archived: January 24, 2012