FHA reform could provide safer mortgages

WASHINGTON – March 16, 2007 – The country needs a strong, viable Federal Housing Administration (FHA) that delivers housing policies that ensure federal housing programs meet their mission responsibly and efficiently, the National Association of Realtors® (NAR) stated yesterday in a hearing before the Senate Appropriations Subcommittee on Transportation, Housing and Urban Development.

NAR has called on Congress to enact legislation that will allow FHA to conform to today’s mortgage environment and reflect consumers’ needs and demands. Changes that FHA has proposed and that are supported by NAR include eliminating the statutory 3 percent minimum cash downpayment and offering downpayment flexibility; allowing the FHA to offer risk-based pricing; and increasing the loan limits for FHA loans.

“Because FHA has not changed with the times and has remained stagnant, a growing number of homebuyers are deciding to, or being forced to, use one of several types of nontraditional mortgages. It is not hard to imagine a lessening of those risky products, and therefore a lowering in the rising number of mortgage delinquencies, if the FHA had an effective alternative to offer them,” said Joanne Poole, an NAR spokesperson and broker-owner from Maryland, to the Senate subcommittee.

Since 1934, FHA has insured more than 34 million properties. However, FHA mortgage products have not evolved at the same pace as other mortgage products offered by private lenders. “In the 1990s, FHA loans accounted for about 12 percent of the market where today they are less than 3 percent,” said Poole. “When formed, FHA was a pioneer of mortgage products, but today it has become like a lender of last resort.”

The FHA program makes it possible for higher-risk, yet credit-worthy borrowers to get prime financing. “By offering access to prime rate financing, FHA provides borrowers a means to achieve lower monthly payments, without relying on interest only or ‘optional’ payment schemes,” Poole said.

When the housing market was in turmoil during the 1980s, FHA continued to insure loans when others left the market. “FHA’s availability has helped to stabilize housing markets when private mortgage insurance has been nonexistent or regional economies have faltered,” said Poole. “FHA is the only national mortgage insurance program that provides financing to all markets at all times.”

Despite its falling market share, the FHA fund remains strong. The FHA capitalization ratio in 2006 was 6.82 percent, high above the congressional mandate of 2 percent. FHA reports its current economic value at over $22 billion. Since its inception, FHA has never needed a federal bailout and has been completely self sufficient. In fact, FHA contributes a significant amount of money to the Federal Treasury each year. FHA loans also have a foreclosure rate lower than many of the riskier, nontraditional mortgage products.


© 2007 FLORIDA ASSOCIATION OF REALTORS®

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