Bank of America Government Lending Fulfillment Center
PREPARED REMARKS FOR
BRIAN MONTGOMERY, FHA COMMISSIONER
THURSDAY, JUNE 19, 2008
Thank you, Jane (LeJeune). Thanks, Allen (Jones). I am pleased to come here during “National Homeownership Month,” here to the front lines of lending. I want to congratulate the Bank of America for establishing this Government Lending Fulfillment Center. We want to make sure that people get the right mortgage for the right home. FHA is a key component in the national housing market. It provides valuable stability and liquidity. It is historically an agency that helps low-income Americans find a home. It is rock solid. It is not going anywhere. It is a steady, predictable partner in homeownership, with the last payment the same as the first payment.
I am pleased that Bank of America understands the importance of FHA.
Bank of America has a history of stepping forward in a time of crisis. Inside this bank there is a story about the early days. The founder of the bank, an Italian immigrant named Amadeo Peter Giannini, believed a bank had a sacred relationship with its customers. So after the San Francisco earthquake in 1906, he laid out two planks on the wharf and kept the bank running while other banks stood stock still, doors closed as the city began its recovery.
Giannini’s spirit is here today. This Government Lending Fulfillment Center is here for those who need it. You know how important this is, how timely this center’s work will be for our economy. There has been powerful, rocketing turbulence in the housing market. In the first part of the decade there was a fast moving, escalating rise in the housing market, a rise that seemed to take us up to the stars. Then, at the end of 2005, there were some hair-raising and gut-churning drops, like some of those wild amusement park rides.
It’s time for something smoother, more level, less scary in the future.
I think Fed Chair (Ben) Bernanke is right. The turbulence will be less difficult, less rocky in the coming months.
I do know that FHA has been an important part of our national response. And it will continue to be important in the foreseeable future. Your work to help facilitate FHA loans is critical to helping people find the mortgages they need. We need to help people who qualify into the safety and security of an FHA-backed loan.
FHA has been there for hundreds of thousands of Americans looking for foreclosure rescue. We have done everything possible within our regulatory authority to expand FHA loans to Americans confronting foreclosure. We are trying to send as much business as possible your way.
For example, in late August 2007, President Bush introduced FHASecure to help Americans facing foreclosure refinance into a safer, more secure FHA loan. Since then, more than 230,000 families have been able to refinance with FHA. The Administration announced this program last year to help more low-to-moderate income families who could not otherwise qualify for prime-rate refinancing. Our projections show that we are on pace to reach 500,000 families by year's end.
In fact, applications from Texans for FHA-insured loans increased 89 percent in the first quarter of calendar 2008, compared to the same time last year.
In addition to helping struggling homeowners, the program has added much-needed liquidity to the real estate market. Since September 2007, FHA has helped pump more than $76.1 billion of mortgage activity into the housing market; more than $30.3 billion of that investment came through FHASecure.
Almost three months ago, in early April, I announced additional assistance to even more at-risk homeowners. That expansion will start on July 14 and will assist families in default as a result of temporary economic hardship, as well as those who were affected by payment shock.
Expanding FHASecure offers lenders a refinancing alternative that makes voluntary write-downs a viable option. Appropriately reducing the principal amount owed on subprime mortgages helps both troubled borrowers and lenders.
Another helpful action was passage of the Economic Stimulus Package. The President’s stimulus package has temporarily increased FHA’s loan limits. For the rest of the year, we can back more mortgages in high-cost states and help homeowners hold on to their houses. The new loan limits were announced in March. I have spoken with many people in the housing industry who believe that this action instantly assisted many homeowners. We project that the new, temporary loan limits will help approximately 100,000 homeowners obtain safe FHA-backed loans by the end of this year.
But these loan limits will expire at the end of the year. So we need to have appropriate and long-term changes to FHA’s loan limits through modernization legislation.
Any modernization must allow risk-based pricing. This will better ensure the solvency and continued operation of FHA's single family mortgage insurance fund,
FHA has already announced implementation of a flexible risk-based premium structure. It’s the first time in FHA’s 74-year history that we have had different prices for premiums. The change is very well timed, allowing FHA to reach more troubled families without placing excessive risk on the insurance fund or on taxpayers.
The modernization bill must preserve this authority, consistent with the goal of fiscal solvency.
What’s interesting about risk-based pricing is that it will actually benefit lower-income American families. We did an analysis of our borrowers and contrary to conventional wisdom, FHA families with the lower incomes have higher FICO scores. These are hard-working American families who live within their means and pay their bills. That’s why we need legislation to do risk-based pricing beyond what we’ve done in rule-making. We need the authority to go beyond the current statutory cap.
We also need to make mortgages more understandable and more uniform. People need to be able to read and understand the fine print of their loans. A home is easily the largest purchase most people make their entire lives. Not many people do it repeatedly so they don’t have a lot of experience with the process and it can be pretty scary, especially when you see charges outside the price of your house and your loan that you have never heard of.
A new study by HUD and the Urban Institute found that total loan fees can vary widely from borrower to borrower within a state, and from state to state, even for similar loans.
The variation can be as much as several thousand dollars. The same study found that members of our minority communities are hit especially hard during the closing process.
African-American families pay an average of $415 more in total loan origination fees than non-minority borrowers, and Hispanic borrowers pay an average of $365 more in total loan origination fees than non-minorities.
The unnecessary complexity of mortgages has actually greatly contributed to our housing crisis. And we must do something to make mortgages more understandable and the process more transparent.
That’s why we are pushing through new regulations to reform the Real Estate Settlement Procedures Act (RESPA) to require all mortgage lenders and brokers to clearly display an estimate of all settlement services, fees, and charges. They must not be hidden in the fine print. This would help to make mortgages more understandable. Borrowers would know the interest rate and monthly payment amount. They would know whether or not the rate or principle balance would increase over time. They will know if there are prepayment penalties or any balloon payments.
The rule will require a clear statement that would itemize closing costs and lock in certain charges at settlement. This would offer greater transparency and certainty, allowing Americans to shop and compare.
We need to do more. Our actions, though significant, are not enough. I can assure you that we will be looking for every possible way to help homeowners keep their homes.
I started by talking about the founder of this bank. Well, on this day in 1885, the Statute of Liberty arrived at Bedloe’s Island in New York. Amadeo Giannini saw it when he came to America. That statute has engraved in its base the following words: “Send these, the homeless, the tempest tossed to me.”
In these times, we must be a beacon of hope to those looking for an affordable mortgage.