A Conversation with Industry Leaders


Thank you, Steve [O'Connor], for that introduction.

  • NOTE: Steve O'Connor is MBA's senior vice president for Government Affairs

I want to thank Secretary Preston for coming here and kicking things off. He's an exciting and talented leader, and I look forward to doing great work with him in the months ahead.

Thanks as well to the MBA for holding this important and timely conference. It's great to rejoin my "conversation" with you. I'm beginning to think we should make it a monthly event!

Last month, I spoke at your "Regulatory and Legislative Roundup" in Boston. I heard your concerns and tried to answer your questions.

I also repeated my call for Congress to modernize the FHA, and to resist the temptation to bail out lenders at taxpayers' expense.

I asked Congress for the tools to allow FHA to price for risk in the marketplace-it's just plain common sense-and the tools to actually lower risk by prohibiting seller-assisted downpayments, which are three times more likely to go into default.

Since then, what has happened? Well, I don't know what Congress has rounded up, but it sure wasn't FHA or housing reform. Two years after we first asked, there still isn't a bill.

But we haven't been just waiting around. We've been taking action:

  • Last August, we created FHASecure to help homeowners in trouble refinance into a safe, secure FHA loan. More than 230,000 families have been helped.

  • In October, we helped the mortgage industry launch the Hope Now coalition, which is taking the single most important step toward foreclosure prevention-contacting subprime borrowers and working with them to find solutions.

  • In December, President Bush signed the Mortgage Forgiveness Debt Relief Act into law, which protects homeowners from higher taxes when they refinance.

  • In March, the economic stimulus package was signed into law, increasing FHA's loan limits temporarily from $271,050 to $729,750.

  • In April, we announced changes to FHASecure to qualify even more people, including those in default because of falling house values or rising interest rates.

  • In May, we announced a new risk-based premium pricing structure that will, for the first time, assist qualified families who have no access to prime-rate financing.

  • And recently you heard from the Office of Business Development about our marketing communications, customer liaison account program, quality BPR, and systems modernization and FHA.gov portal.

  • Also, the comment period for our RESPA reform proposal ends today.

What is RESPA reform, and why is it needed? A new study by HUD and the Urban Institute found that millions of buyers overpay on their closing costs. Loan charges and title fees vary considerably from state to state and even from race to race. African-Americans pay an average of $415 more than non-minorities, and Hispanic-Americans $365 more, for their home loan.

This is unacceptable. Under the reform, brokers and lenders would offer a simple, clear "Good Faith Estimate" to borrowers as they close on a house. It would save the average borrower nearly $700 and ensure a more fair and equitable homebuying experience.

Many of you already know about these actions. But you may not know about this next one. Currently, FHA prohibits insuring a mortgage on a property owned by the seller for 90 or fewer days. This prevents so-called "flipping" of properties. A waiver exempts properties owned by FHA, GSE's like Fannie Mae and Freddie Mac, and similar state and federal chartered institutions.

The problem is, many of these sales are made with non-exempt parties, including mortgage subsidiaries and outside vendors. So we end up having to leave properties vacant for 90 days just to satisfy the requirement. This harms neighborhoods, frustrates homebuyers, and delays recovery.

So on Tuesday, I added these parties to the waiver for one year, by which time recovery should be underway.

This is a lot to digest, I know. But it's just a start. Because our goal is sustainable homeownership.

That's why our theme for National Homeownership Month, which is this month, is "Back to Basics." The country needs to purge itself of "liar loans," "piggyback loans" and other costly schemes and scams.

Now, some in the mortgage and banking industry do not share my enthusiasm for some of our reforms. I understand. They do not want to have their hands tied with mandates. They do not want to lose market share to the FHA.

But families-and the market-are looking for signs that we "get it." When I spoke at the National Press Club Monday, the audience laughed when I said our nation must return to the days of "checking credit, employment history, and the ability to pay." It's something FHA has always done.

But the fact that the industry drifted so far away from these obvious and basic values speaks volumes.

Remember, FHA itself has had to reform several times to stay current. In 1981, lawmakers talked about pulling the plug on us. During the housing bubble, we were eclipsed by the subprime loan explosion. We were called "old-fashioned" and out-of-touch.

So we reduced paperwork and got faster and more efficient. We corrected what I call the "headache factor." We made it so you didn't have to hire a team of lawyers to understand the process. And now, we're back.

People are once again seeing the value that FHA brings to the table. They crave the security of knowing that their final payment will be the same as their first payment.

Three times as many families chose an FHA loan in the first quarter of 2008 compared to the same period in 2007. Listen to this: FHA accounted for 8 percent of loans outstanding, and 7 percent of foreclosures begun in quarter one. In contrast, subprime ARMS constituted 6 percent of loans outstanding, but 39 percent of foreclosures started!

Quite a contrast.

The industry should not worry about FHA's resurgence. This is not something new; it's a return to normalcy. In fact, since September, FHA has pumped more than $76 billion of mortgage activity into the market-$30 billion due to FHASecure.

And FHA families are a good risk. They work hard and live within their means. FHA customers with lower income levels actually have higher FICO scores.

Secretary Preston has said that "HUD will be central to restoring stability in our markets and in the lives of many Americans." This is not something to fear. It's something to welcome. And I welcome your comments and suggestions as we climb out of this crisis together and toward a brighter future for us all.

Thank you.

Content Archived: January 25, 2012