HUD Secretary Testifies on FY 2011 Budget Request

“While the economy has a long way to go to reach full recovery, and the promising indicators emerging steadily are not being experienced by all regions or communities equally, it is clear that we have pulled back from the economic abyss on which the nation stood a year ago,” said Shaun Donovan, Secretary of U.S. Department of Housing and Urban Development during testimony before the House Appropriations Subcommittee on Transportation, Housing and Urban Development on Tuesday.

Donovan outlined the Departments FY 2011 budget and said that due to the Federal Housing Administrations increased role, it has rolled out a series of measures over the last year to strengthen its risk and operational management. The agency recently hired the first chief risk officer in its 75 year history and created an entire risk management organization and reporting structure, tightened its credit standards significantly said Donovan.

In addition, FHA has expanded its capacity to rein in or shut down lenders who commit fraud or abuse by implementing a series of significant measures aimed at increasing lender responsibility and enforcement. FHA has begun implementing a plan to significantly upgrade its technology infrastructure and increase its personnel to ensure that both are in keeping with the increase of its portfolio and responsibility.

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The FHA is requesting a combined mortgage insurance commitment limitation of $420 billion in fiscal year 2011 for new FHA loan commitments for the Mutual Mortgage Insurance (MMI) and General and Special Risk Insurance (GI/SRI) funds said Donovan. The proposed total includes $400 billion under the MMI Fund, which supports insurance of single family forward home mortgages and its reverse mortgage program (HECM); and $20 billion under the GI/SRI Fund, which supports multifamily rental and an assortment of special purpose insurance programs for hospitals, nursing homes, and Title I lending.

According to Donovan’s prepared testimony, he failed to mention the Office of Management and Budget’s $250 million credit subsidy request for the HECM program. Last year during a Senate testimony, Donovan was questioned about the $798 million taxpayer subsidy for the HECM program and it was eventually withdrawn from the budget and lead to a 10% haircut to the principal limits.

Whether or not he did this on purpose isn’t clear, but not drawing any “extra attention” to it could be a good move for the HECM program.

Donovan Testimony

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  • The HUD portion of the budget for this fiscal year has never changed. The HUD portion of both the House and Senate appropriations bills, however, were different from the budget adn different from each other. CBO scored the House version of the appropriations bill as zero with a 10% reduction to principal limit ratios; the House version provided for no subsidy from Congress. The Senate version would have required a $288 million dollar subsidy.

    Will a subsidy be required if the ongoing MIP is raised to 1.25% and the principal limit factors reduced by only 5% instead of the current 10% during the fiscal year ending September 30, 2011? HUD needs to clarify what is being proposed. I am afraid I am not as optimistic as Admin on this one; I wish the Secretary had gone over the HECM budget in detail.

  • The HUD portion of the budget for this fiscal year has never changed. The HUD portion of both the House and Senate appropriations bills, however, were different from the budget adn different from each other. CBO scored the House version of the appropriations bill as zero with a 10% reduction to principal limit ratios; the House version provided for no subsidy from Congress. The Senate version would have required a $288 million dollar subsidy.rnrnWill a subsidy be required if the ongoing MIP is raised to 1.25% and the principal limit factors reduced by only 5% instead of the current 10% during the fiscal year ending September 30, 2011? HUD needs to clarify what is being proposed. I am afraid I am not as optimistic as Admin on this one; I wish the Secretary had gone over the HECM budget in detail.

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