December 15, 2017

FHA Should Make It Harder To Borrow?

Wednesday, December 2, 2009 – 21:36

US HUD’s Donovan: FHA Should Make It Harder to Borrow

WASHINGTON (MNI) – Secretary of Housing and Urban Development Shaun Donovan Wednesday told a House panel that the economy is back on track with help from the FHA, but it is in no way “out of the woods.”

Donovan said he wants to force lenders to be more accountable. He wants to make sure the borrower will have “more skin in the game” and a stronger equity position in their loans. Donovan also requested higher annual FHA insurance premiums.

Donovan’s testimony to the House Financial Services Committee was in the context of a report two weeks ago and additional testimony Wednesday saying the FHA, HUD’s mortgage guarantee arm, is close to being technically insolvent.

Thirty one billion dollars is set aside to specifically cover the losses for the years ahead and the FHA will not be in the red under the most severe economic scenarios, Donovan said. Some other witnesses say the scenarios posed are unrealistically optimistic.

The FHA requires borrowers to demonstrate that they can pay their mortgage by verifying their employment and income. Donovan said he thinks the quality of the existing portfolio should be reviewed, loan performance criteria improved and the capital reserve returned to the legislatively mandated 2% level under which the FHA has slipped.

The FHA does not face a funding crisis, however, because Congress already granted access to government backup funding when needed.

Committee Chairman Barney Frank said he supported raising the limits but said one aspect concerned him: “I do not want to see a woman making $50,000 dollars a year and working very hard and getting a loan and paying it off who has to pay a higher premium at the end than somebody making three times that much money because she was in the risk-based category.” There has to be some way, he said, that “those people who are considered in the risk-based category — who made their payments — get compensation.”

After the hearing Frank issued a statement saying, “Recent press reports about FHA loan limits have created the mistaken impression that federal loan limits allow loans up to $729,750 anywhere in the country. This is simply not true.”

He said, in fact, “There are only 77 counties where an FHA loan as large as $729,750 can be made, and less than 2% of FHA’s outstanding loan portfolio consists of loans which exceed $417,000, the previous GSE conforming loan limit.”

The average FHA loan made in the fiscal year just ended, he said, “was only $185,278. FHA always has and will continue to focus on loans to middle and lower income families.”

** Market News International Washington Bureau: 202-371-2121 **

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