The Department of Housing and Urban Development is committed to swift housing finance reform even if it means stepping out ahead of Congress, Federal Housing Administration (FHA) Commissioner Carol Galante said Thursday.
“If FHA is going to participate in a new role moving forward, it needs to be able to quickly respond to changes in a volatile housing market that aren’t always compatible with awaiting regulatory and legislative changes,” Galante said, speaking at a housing forum sponsored by Zillow and the Bipartisan Policy Center in Washington, D.C.
Galante cited the case of HUD’s reverse mortgage program as having led to the agency to ask for a treasury infusion, a measure which would not have been necessary had HUD had the authority it was seeking from Congress to make program changes in advance.
An actuarial review in November 2012 revealed losses of $2.8 billion to the FHA’s Home Equity Conversion Mortgage (HECM) program, and the agency received the capital infusion in September, having not been granted authority in enough time to make changes, Galante noted.
Policymakers have been calling for reforms to the nation’s current housing finance system that will wind down the government’s presence in the mortgage market with the hopes of inviting the return of private capital back into the market.
“Housing finance reform is necessary to ensure the economy emerges stronger and more secure from the worst economic recession since the Great Depression,” Galante said.
For the FHA to play an appropriate role as a result of these reforms, Galante proposed three key tools that will help FHA manage risk under the new system.
The foremost tool outlined by the FHA Commissioner is the ability to quickly make and respond to changes, rather than awaiting regulatory action.
An example she provided was the action necessary to make changes to the Home Equity Conversion Mortgage (HECM) program, which contributed to the $16.3 billion shortfall of the agency’s Mutual Mortgage Insurance (MMI) fund shortfall.
The MMI fund consists of two parts, which are the HECM and single-family mortgage programs. The impacts of these programs on the MMI fund have led to a $1.7 billion bailout from the U.S. Treasury—the first time FHA required an infusion in its near 80 years of operation.
“FHA needs to be able to step in quickly and effectively,” Galante said. “We would not be standing here talking about a Treasury draw if not for those two programs.”
A second tool the FHA will require under a reformed housing finance systems hinges upon the need to identify and manage risks to the MMI fund in a better way that the agency can today.
This requires increased specialized staff in the agency’s risk offices, as well as being able to attract and retain such staff who can engage in risk management within the nation’s complex housing finance system.
“It would be unconscionable to not have this help and retain this kind of staff, given the work we have in front of us,” Galante said.
Commissioner Galante even joked to the forum audience that FHA could offer internship possibilities to Zillow—one of the sponsors for the event—for the company’s staff of Ph.D. economists and other quality professionals.
Because the FHA’s budget is constrained by a federal appropriations process, FHA is also calling for greater control over its resources to ensure that accessing the agency’s resources to mitigate risk are not hindered during times of economic crises or another government shutdown, even.
“In a budget environment where the nation is stretching every dollar, these three tools are critical if FHA is going to play an appropriate role in a new housing finance system,” Galante said.
Because a “rock-solid” housing market provides not only a foundation for the middle class, but also an engine to keep the country on its road to a full economic recovery, Galante urges that the time for reform must arrive sooner rather than later.
“There is an urgency that needs to be harnessed,” she said. “The opportunity is now and it’s too valuable to waste.”
Written by Jason Oliva