FHA Commissioner: Loan Program Changes are Paying Off

Policy changes are paying off, though there’s more work to be done in shoring up the Federal Housing Administration’s insurance fund, the agency’s commissioner wrote this week in a letter to Congress. 

Citing findings from an independent actuarial review of FHA’s mutual mortgage insurance fund published last week, the commissioner pointed to improvements that have led to the fund’s value improving by $15 billion over the course of fiscal year 2013. 

Yet, the fund’s value remains negative $1.3 billion. 

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“This Administration has worked hard to implement the policies and practices that have led to this turn-around,” wrote FHA Commissioner Carol Galante in the letter. “Since 2008, FHA has taken a number of steps to restore capital, including adjusting premiums, tightening credit policies, and expanding its use of alternative disposition strategies for defaulted assets. As a result, recovery rates have substantially improved and the credit quality of our most recent books of business remains at historically high levels – keeping FHA on the right track for the future.”

The changes have not been without some struggle for lenders, Galante noted, presenting an ongoing challenge for those who are making loans, both forward and reverse. 

“In the years since the crisis began, the housing industry has been asked to adjust to an unprecedented amount of change. No doubt it has been challenging to keep up with all of the new policies and initiatives introduced by FHA and other regulatory agencies,” she said. 

In light of this, FHA is working on an ongoing basis to improve quality assurance procedures and communications including the consolidation of more than 900 mortgagee letters into a single handbook. 

But there is more work FHA needs to do, Galanted noted, stressing the need for Congressional action to help housing recover further. 

“…we continue to ask Congress to pass legislation that will enhance our overall ability to manage risk. Specifically, FHA needs the ability to require indemnification from all classes of FHA-approved lenders, the authority to terminate lender approval on a more refined geographic basis, and the flexibility to engage specialty servicers,” she wrote. “Legislation to revise the calculation of the compare ratio and reduce barriers to more effective risk management would also be beneficial to the Fund.”

Written by Elizabeth Ecker

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  • Real estate appreciation is what has contributed the most to this slight improvement. The market is recovering from a 40 percent decline in values and several years of nearly zero appreciation. The market is still 17 percent below 2006 values. HUD’s fixes will eventually contribute something to the health of the fund but for now it’s mostly home appreciation, nothing more.

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