Written by: FHA Acting Commissioner Carol Galante
The health of the FHA and management of its business have been frequent topics of discussion in the media and among our stakeholders in recent months. Certainly, these are important issues – to the ongoing recovery of our economy, to the future of our housing finance system, and to American taxpayers. We welcome a robust and healthy discussion of ways to further strengthen FHA, but such an exchange is only possible when it is based upon accurate information. Today, we have posted Myths and Facts Regarding the FHA Single-Family Loan Guarantee Portfolio to address a range of questions and concerns regarding the FHA and the methods used to evaluate its health.
But any discussion of FHA’s Mutual Mortgage Insurance Fund (MMIF) must start at the beginning: the health of the fund and state of the market in late 2008 to early 2009. Immediately prior to the Obama Administration taking office, FHA’s portfolio was beginning to experience significant stress as a result of economic conditions and a large volume of loans supported by seller-funded downpayments. When home prices fell and the recession deepened, these books began to default and claim at record rates. This Administration acted quickly and aggressively to avoid repeating those mistakes and to mitigate their effect on the fund, while still ensuring that FHA performs its mission of providing access to the housing market, particularly for underserved communities.
We have taken more steps since January 2009 to eliminate unnecessary credit risk and assure strong premium revenue flows than any Administration in FHA history, and those efforts continue.
- To stabilize the MMIF and contribute to FHA’s ability to remain a strong and viable financing option for all credit worthy borrowers, we have instituted a series of premium increases for FHA products, including the recently announced changes to the annual and upfront premiums expected to add more than $1 billion in additional receipts for FHA beyond those anticipated in the President’s budget.
- We have significantly increased oversight of lenders and enforcement of FHA requirements. With the landmark servicing settlement with the nation’s largest mortgage servicers and additional origination settlements with individual lenders and, FHA’s MMI Fund will be compensated over $900 million for losses resulting from violations of FHA requirements by servicers and originators of FHA-insured loans.
- We will continue aggressive enforcement of our lender requirements to protect the Fund and American taxpayers from bad actors. But we will also clarify the rules of the road for FHA lending, as we have done through our recently published rule which outlines the process for requiring indemnification by participants in our Lender Insurance program for improperly originated loans and giving us a solid foundation for requiring repayment by lenders when those guidelines are violated.
- To further decrease risk to the fund, we strengthened borrower qualification requirements to require higher downpayments for borrowers with low credit scores to ensure that FHA-insured mortgage financing is offered to individuals who can meet their mortgage obligations and truly experience the benefits of sustainable homeownership. In addition, HUD is now seeking to reduce allowable seller concessions in order to protect FHA and borrowers from the impacts of inflated appraisals.
- We know that lowering costs for responsible FHA borrowers decreases their risk of default — and ultimately reduces risk to the fund. Reduced upfront and annual premiums in FHA’s Streamline Refinance program will help more FHA borrowers to take advantage of low interest rates. Moreover, by eliminating those loans from the method FHA uses to compare the relative performance of approved lenders, we have removed an important barrier to lender uptake.
- And finally, to better serve borrowers facing difficulties in meeting their mortgage obligations, we have made changes to our already robust mandatory loss mitigation requirements to provide additional opportunities for borrowers to remain in their homes.
This Administration has acted aggressively to strengthen and protect the mortgage insurance fund and put FHA on a sustainable path for the long term. Multiple independent analyses show that we are moving in the right direction and that the outlook for FHA and the fund is much better than it was in 2009 . There are still significant risks remaining — particularly if house prices continue to decline or underlying economic conditions worsen. And in determining the most appropriate actions for FHA we will continue to balance protection of the fund with the need to ensure the continued recovery of a fragile economy.
But it is clear that FHA programs remain vital to ensuring more Americans have the opportunity to realize or maintain the economic security of the middle class. And the work this Administration has done has established a strong foundation upon which we will construct an economy built to last.