With tightened underwriting standards enacted by mortgage lenders from the fallout of the subprime crisis, Federal Housing Administration (FHA) financing quickly moved to be a leader in the mortgage financing arena, coming to the aid of lower-income and many first-time homebuyers. This year alone it is estimated over 30% of mortgage loans were FHA-insured.
Now comes the dreaded announcement yesterday that some anticipated was coming by U.S. HUD Secretary Shaun Donovan, about a potential round of policy changes designed to reduce the risk of the FHA portfolio. Proposed new stringent underwriting standards being considered that include potential increased FICO credit scores, increased mortgage insurance premiums and downpayment requirements on behalf of borrowers—can only mean great disappointment for new homebuyers waiting to purchase their first new home.
While these talks are still in the infancy stages, formal plans and proposed rules are expected to be considered by Congress in the next month. We hope HUD takes a good, long hard look at the population its programs are destined to serve before making any radical changes that will severely impact its market share and potentially put its programs out of reach of many potential homebuyers.
Vicki Cox Golder, president of the National Association of REALTORS® testifying yesterday before a congressional panel of the House Committee on Financial Services stated the FHA program is “fiscally sound with responsible underwriting and needs enhancements not radicial reform.” She urged Congress and the administration to tread lightly before making changes to a program that could have a profound impact on economic recovery and serves the nation’s families.
Golder’s testimony reported, thus far in 2009, nearly 80% of FHA-insured purchasers are first-time homebuyers and nearly 50% of all first-time homebuyers used FHA financing alone in the second quarter of this year. In Illinois alone, 51% of those who purchased a home in 2009 were first-time homebuyers according to the NAR Homebuyer/Homeseller Survey. Messing with a resourceful program like FHA, a program that serves a significant share of first-time buyers, could mean putting homeownership out of reach for many. FHA has historically met the needs of low and moderate income homebuyers, but has never resorted to abusive loans, improper or nonexistent underwriting or other bad practice. Solid policies and practices have protected it from the biggest failures.
The National Association of REALTORS® is formally on record opposing H.R. 3706, the “FHA Taxpayer Protection Act of 2009”. “Requiring a larger downpayment will make homeownership out of reach for many families and others and would deplete their cash reserves for home and other emergencies,” Golder said in her testimony.
We join NAR in urging the best way to ensure FHA’s success is to strengthen it and not make radical reform.