Media Teleconference Call to Discuss FHA Expansion

TUESDAY, JULY 08, 2008

Thanks, Steve (O'Halloran). Good morning. Thank you for phoning in. I wanted to join FHA Commissioner Brian Montgomery to talk about the next phase of FHASecure and discuss housing legislation pending before Congress.

As you know, in response to the housing crisis, FHA has expanded its mission to help more Americans facing foreclosure refinance into safer, more affordable mortgages. In late August 2007, President Bush introduced a new product called FHASecurefor homeowners who were unable to make their mortgage payments after their interest rate reset. Since then, more than 260,000 families have refinanced with FHA. Hundreds of thousands more will refinance with FHA by the end of the year.

Starting on July 14th, FHASecure will begin to provide additional assistance to subprime borrowers with adjustable rate mortgages, and help to restore liquidity and stability to the markets. It will assist families who have missed up to three monthly mortgage payments over the previous 12 months or have experienced temporary economic hardship, such as loss of overtime or medical needs, as well as those who were affected by payment shock. The expansion will also encourage lenders to voluntarily write down outstanding subprime mortgage principal.

We estimate this plan will help an additional 100,000 families refinance into more affordable FHA-insured loans by the end of the year.

The combination of all efforts under FHASecure will help a total of 500,000 families by year's end. Our monthly refinancings this fiscal year are already more than five times the level of 2006. It is clear people are coming to us as their solution for the future.

As part of this expansion, we are instituting a fairer, more flexible premium pricing structure at FHA. Like any other insurance company, FHA will begin pricing the insurance premiums for these borrowers according to their credit risk. This will eliminate a pricing inequity that treats applicants with a low risk of default the same as those with a high risk of default.

Risk-based pricing will benefit many borrowers, especially lower-income American families. In FHA's portfolio, 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. Pricing mechanisms should reflect that fact.

The bill currently moving through the Senate would place a moratorium on risk-based pricing. That would be a big mistake. FHA will have to increase premiums across the board on all borrowers or, alternatively, seek taxpayer funds in October to cover potential losses, or cut back on the program at the very time we are an island of hope for hundreds of thousands of Americans.

In addition to a possible moratorium on risk-based pricing, Congress may require FHA to accept mortgage insurance loans with seller-funded downpayment assistance. The option for FHA not to insure such mortgages would be removed. This would not only be costly for FHA but could be expensive for taxpayers, too. Even if FHA raised premiums to a max of 2.25 percent upfront for all borrowers across the board, it would still need to seek an appropriation to cover the losses caused this practice.

We have issued a regulation to address seller-funded downpayments. We are in a comment period right now, and I intend to look hard at those comments. Therefore, I do not want to discuss this matter in great detail. The comments are important to us and we will look at them carefully. But the reason for our efforts to regulate in this area is that FHA-backed mortgages with seller-funded downpayments go into foreclosure at three times the rate of FHA's remaining portfolio. Because of a lack of equity, losses on these seller-funded downpayment mortgages are significantly greater. We remain solvent and in good shape today. But no insurance company can continue to absorb losses of this magnitude.

At the end of the day, I hope reason will prevail. FHA is more important to the mortgage market now than it has been for many years. FHA's volume and market share continue to grow every month. I hope final legislation from Congress would put forward actions that can keep FHA solvent, self-financing, and responsibly able to help homeowners. Taxpayers should not have to absorb preventable, foreseeable losses.

We are looking for the Congress to pass responsible legislation that will help FHA continue to provide stability for the housing market and provide government-backed mortgages for low-and-moderate income families.

Thank you.

Note: To read Press Release, visit


Content Archived: January 25, 2012