Brookings Institution: FHA Needs More Funding, Not Less

The Federal Housing Administration needs more funding to increase its efficiency, not cuts, the Brookings Institution’s Center for Responsible Lending claimed last week.

Writing for the nonpartisan Washington think tank’s website, Center for Responsible Lending president Michael D. Calhoun argues that the FHA plays a vital role in the strength of the economy and the growth of America’s middle class, and thus should receive additional federal funds to achieve its goals.

Calhoun writes that in the wake of the mortgage-backed securities crisis, FHA allowed legions of Americans to secure loans that traditional lenders would not issue. The administration also continues to play an important role in housing access for people of color; Calhoun cites statistics from 2015 that show nearly half of all African-American and Latino mortgage borrowers used FHA-backed products to purchase homes.

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“Given the growth of these households and their key role in the overall housing market, FHA’s contribution has been essential,” Calhoun writes. “However, there are still few home purchase loans in both the overall mortgage market and for borrowers of color compared to historic norms prior to the housing boom.”

Calhoun’s column comes as the Department of Housing and Urban Development potentially faces up to 13.2% in funding cuts should President Trump receive every concession on his budget wish list. HUD secretary Ben Carson has tried to assuage fears in recent weeks by claiming that housing dollars will be included in a potential infrastructure bill, but no specific details on HUD’s budget are expected until May.

The problem, as Calhoun sees it, rests in the way the FHA is currently structured. He points out that any revenue the administration takes in must be applied to the Mutual Mortgage Insurance Fund by statute, preventing officials from using that money to beef up its operations and potentially thwarting their ability to manage its own growth.

For instance, under the False Claims Act, the government can smack anyone who provides false information to the FHA regarding one of its loans with a triple penalty, but according to Calhoun, the exact types of violations that constitute “false information” remain vague.

“As a result, lenders are understandably wary of making an FHA loan that has even a modest risk of defaulting,” Calhoun writes. “This has led to lenders imposing credit overlays on FHA’s standards, and caused many larger lenders to withdraw from FHA lending entirely.”

The administration attempted to rectify this situation by developing a “taxonomy” of different types of loan violations, but due to lack of funds, the plan was never implemented, Calhoun writes.

But the problem isn’t limited to larger-scale issues of oversight and enforcement. Calhoun notes that the administration doesn’t even have the funds to upgrade its ancient COBOL-based mortgage tracking software, and finding computer programmers fluent in the coding language, which traces its history back to 1959, often proves difficult. 

Calhoun claims that drawing from the MMI fund to help complete needed system upgrades — a procedure that’s allowed in certain circumstances under the terms of the Housing and Economic Recovery Act of 2008 — will eventually save taxpayers money and boost the economy.

“These targeted expenditures, carefully monitored, would produce substantial net savings for the MMIF — protecting taxpayers — and would materially advance the housing market, opportunities for homeowners, and the overall economy,” Calhoun writes.

Read the full piece here.

Written by Alex Spanko

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  • Pulling monies from the MMI Fund to do certain work at HUD reminds one of the excuses used to “borrower” money from Social Security and Medicare that would result in lower costs to each but proved as flimsy as the foundation for the reasoning used in “robbing” the MMI Fund. Where is the evidence proving the premise?

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