Courson Urges Caution to Ensure FHA Viability
Mortgage Bankers Association - March 12, 2010
Mortgage Bankers Association President and CEO John Courson told a House subcommittee yesterday that lawmakers should move cautiously on reform legislation to ensure FHA's future viability.
Testifying before the House Financial Services subcommittee on Housing and Community Opportunity, Courson re-emphasized MBA’s support for FHA modernization and the enhanced role it has played in the housing market. But he cautioned that several legislative proposals have the potential to do more harm than good to the lending industry.
The hearing, which also included testimony from FHA Commissioner David Stevens and other industry trade groups and interests, follows up on a November actuarial report (http://10.16.2.165/IssueDocuments/FHA%20Actuarial%20Study%202009.pdf) from HUD that showed FHA’s Mutual Mortgage Insurance Fund has fallen to 0.53 percent, or $3.6 billion as of Sept. 30, well below its congressionally mandated 2 percent level. The report said FHA’s total reserves stood at $31 billion as of Sept. 30.
Subcommittee Chair Maxine Waters, D-Calif., sponsored an administration discussion draft, the FHA Reform Act of 2010, that would amend the National Housing Act. Its provisions include giving FHA the ability to mortgage insurance premiums from 0.5 percent to 1.5 percent; gives the HUD secretary additional authority to impose indemnification terms for mortgagees; and gives the HUD secretary authority to terminate mortgagee origination and underwriting approval under certain circumstances.
Courson praised HUD and FHA for the positive steps it has taken over the past year, including steps taken to protect the MMIF, improvements to FHA's appraisal procedures, its streamline refinance program, the process for approving lenders and keeping in place the prior Administration's ban on seller-funded downpayment assistance.
"Today, FHA finds itself at a critical crossroads,” Courson said. “Last November's actuarial report was a wake-up call to us all, and it highlighted the very real threats to FHA's continued solvency. All of us here today support FHA and the important role it plays in promoting homeownership. However, that role could be greatly diminished, and even disappear, if we don't get FHA's fiscal house in order.”
Courson said MBA supports HUD's proposal to increase the cap on the annual mortgage insurance premium for FHA's single-family programs. “Raising premiums is never desirable, but if done prudently, and if coupled with decreases in the upfront MIP, this step has the potential to strengthen FHA's books while actually lowering closing costs for many borrowers,” he said.
On HUD’s proposal to expand and extend indemnification requirements to all FHA single-family lenders, Courson said initial reaction from our members has been “largely positive, but we would also urge great care in how this change is implemented.”
"Lenders take indemnification very seriously,” Courson said. “If lenders fear unreasonable standards or penalties, they could become overly cautious. The details of any proposal in this area will be critical, and we urge the subcommittee to move carefully to ensure that responsible lenders are not discouraged from participating in the FHA program.”
A third element of the draft would give FHA the authority to suspend a lender nationwide on the basis of the performance of one of its regional branches. Courson said MBA members support rooting out fraudulent lenders. “They hurt borrowers, put the MMI Fund at risk, and they are a stain on our entire industry,” he said. "At the same time, suspending a lender is a very serious action and should be undertaken cautiously and only when justified. MBA urges this subcommittee to ensure that this policy allows lenders ample opportunity to remediate any problems within a field office before receiving a nationwide sanction. These policy changes should be clear, transparent, and apply equally to all lenders.
Courson said MBA supports an FHA proposal to increase the downpayment to 10 percent for FHA's riskiest loans where the borrower has a credit score below 580. “However, we would caution policymakers to resist imposing an across-the-board increase to the FHA downpayment requirement, as this would have a chilling effect on the ability of FHA to meet the credit needs of the borrowers it serves,” he said.
Courson also expressed MBA member concerns about a proposed 50 percent reduction in maximum seller concessions, which are typically used to cover closing costs. “This change will primarily impact low-to-moderate, first-time, and minority borrowers--the very populations FHA is designed to help,” he said.
Courson had two additional recommendations: that FHA should reexamine its TOTAL Scorecard underwriting system to review the thoroughness of the scorecard's borrower risk assessment capabilities; and to ensure that that FHA receives adequate funding for upgrading its technology and hiring additional staff both for its single-family and multifamily programs. The House has already passed H.R. 3146, the 21st Century FHA Housing Act; Courson urged the committee to “redouble efforts to make certain FHA gets this needed funding.”
"There's no sugarcoating the unsafe position in which FHA finds itself today,” Courson said. “We simply must take the strong and necessary steps to protect its vital programs, the MMI Fund and, ultimately, the taxpayers who stand behind it.”