FHA Training Session
PREPARED REMARKS FOR
BRIAN MONTGOMERY, FHA COMMISSIONER
TUESDAY, JUNE 24, 2008
Thank you, Jim (Kelly). And thanks to Michael (Levine - Deputy PHI HOC Director). And I want to thank Phil Caulfield (PHI HOC - doing the training at this session) for his willingness to provide training for this session.
Good morning. I am pleased all of you could come to this training session today. I know that most of you are new lenders, just new to FHA. So perhaps you haven't had much experience with the Federal Housing Administration (FHA) products.
And even if you have, there have been some significant changes to FHA recently that you all need to know. In the current housing market, now more than ever, information is vital. We must know about all of the opportunities available to help people find a home they can afford and to stay in that home. And believe me; we want to work with you.
Let me start with a brief history of FHA. In the first three decades of the 20th Century, there was a sustained housing crisis. In response, FHA was created in 1934 to provide stability in the housing market and to provide a way for low-to- moderate income Americans to buy a home, or to stay in their home. Since that time we have insured close to 35 million home mortgages.
For many years FHA was a well-known option, an easily identifiable product. But in the last decade, especially during the rise of subprime loans, FHA became a forgotten option. To quote one recent newspaper story, FHA is "back in vogue." Indeed, it is. FHA is becoming a larger part of the housing market, growing from about 2 percent of the market in 2006 to about 10 percent of the current market.
That is a large jump, and I believe FHA will gain even a larger share of the housing market in the coming months. I know here in Baltimore FHA-backed mortgages are increasing steadily.
FHA has been a crucial part of our national response to the current housing crisis and will be so for the foreseeable future. Your work to facilitate FHA loans is critical to helping people find the safe and sound mortgages they really need, now more than ever.
FHA has been there for hundreds of thousands of Americans looking for a viable option to foreclosure.
In late August 2007, President Bush introduced FHASecureto help Americans facing foreclosure refinance into a safer, more secure FHA loan. Since then, approximately 250,000 families have been able to refinance with FHA. Our projections show that we are on pace to reach a total of 500,000 families by year's end.
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. It 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 and borrowers 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 the passage of the President's Economic Stimulus Package. The stimulus package 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.
We project that the 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.
And any modernization must allow risked-based premium pricing. This will better ensure the solvency and continued operation of FHA's single family mortgage insurance fund.
FHA has already announced the implementation of a flexible risked-based premium structure. It's the first time in FHA's 74-year history that we have had different prices for premiums for potential borrowers with varying degrees of risk.
What's interesting about risked-based premium 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 actually have higher FICO scores.
These are hard-working American families who live within their means and pay their bills on time. That's why we need legislation to do risked-based premium pricing beyond what we are attempting through our proposed rule.
We have taken other steps. In an effort to stabilize declining home values in certain neighborhoods, this week we announced a temporary policy that will extend government-backed mortgage insurance and allow for the immediate sale of vacant foreclosed properties.
Historically, FHA has prohibited insuring a mortgage on a home owned by the seller for less than 90 days. This prohibition was intended to prevent property "flipping," a predatory practice that strips a home of its equity before being quickly resold at an inflated price to an unsuspecting buyer.
For one year, FHA will insure foreclosed properties marketed and sold by property disposition firms on behalf of lenders. The properties, which must purchased by owner-occupants, will no longer be subject to the customary 90-day waiting period.
This action will allow homebuyers to purchase these homes in much greater numbers and ease the excess supply of unsold homes in neighborhoods across the country.
Additionally, in an effort to return to "back to basics mortgages," we need to make mortgages more understandable and more uniform. People need to be able to read and understand the fine print of their loans. The unnecessary complexity of mortgages has greatly contributed to our housing crisis. We must do more to make mortgages understandable and the process more transparent.
That's why we are proposing through new regulations to reform the Real Estate Settlement Procedures Act (RESPA) to require all mortgage lenders and brokers to clearly display, up front, an estimate of all settlement services, fees, and charges. They must not be hidden in the fine print.
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.
Frankly, RESPA reform will help in many ways. For one, we estimate it will save about $700 per borrower in closing costs. We are currently reviewing the public comments on the proposed rule and look forward to making some positive changes based on those comments.
On a separate note, I know there are some representatives from the non-profit sector with us, and some of you are housing counselors. We need your continued good work. Like many of you, I read the powerful piece in the New York Times (March 26, 2008) about a housing counselor here in Baltimore, Roy Miller, who helped Wilbert and Patricia Savage keep their home.
They were in trouble, having already missed two mortgage payments. But Mr. Miller, on their behalf, called their lender and worked out a solution. Mr. Savage told the reporter that "Without Roy, we'd probably be out of a home or close to it."
The Savage family members are not the only beneficiaries. Foreclosure rates have stabilized in the Belair-Edison neighborhood where Roy works. Roy's organization, the Belair-Edison Neighborhood Initiative, has been credited with using public records and visible street marketing to identify those in trouble and to help them keep their homes. They have strengthened outreach and are extremely pro-active. I think we all have to be that innovative, pro-active, hands-on, and compassionate at this moment.
This story is clear evidence that housing counselors are vital to addressing the turbulence in the market. We know that approximately 97 percent of those who completed our housing counseling program with a HUD-approved housing counselor avoided foreclosure in 2007. That is powerful evidence about the difference that housing counseling can make.
This Administration recognizes the value of housing counseling. That is why the President has requested $65 million in his new budget for housing counseling. That is an increase of more than 150 percent since he assumed office. Housing counselors help prevent problems.
There is more we must do. In a changing marketplace there are numerous opportunities to make a difference, if we look for them, and take appropriate action. I can assure you that at FHA we will be looking for every possible way to help homeowners keep their homes.
Thank you again for your interest in FHA and thank you for the opportunity to be here with you today.