Mar.The Federal Housing Administration ’s FY2013 Budget Request
At a Senate Appropriations Subcommittee on Transportation, Housing and Urban Development, and Related Agencies hearing on March 8, Carol Galante, Acting Federal Housing Administration (FHA) Commissioner and Assistant Secretary for the Department of Housing and Urban Development (HUD), updated members on the status of the Mutual Mortgage Insurance Fund (MMI Fund) and defended the Obama administration’s proposal to increase FHA’s 2013 budget.
In her opening remarks, Chairman Patty Murray (D-Calif.) roundly praised the work the FHA has done to support the housing market in the aftermath of the 2008 crisis, pointing out that the FHA now supports nearly 30 percent of the purchase market and 16 percent of all loans, including refinances. However, she also acknowledged that the FHA’s outsized role in the market has exposed it to greater risk, including a substantial risk to the MMI Fund’s health.
Murray highlighted the Obama administration’s recent efforts to shore up the finances of the FHA and the MMI fund, which includes premium increases, changes to the FHA’s Streamline Refinance Program, and a $900 million payout from the recent Mortgage Servicer Settlement, but she noted that these proposals “aren’t without their own risks, costs and moral hazard.” In closing, Murray urged Congress not to lose sight of the role that FHA played in maintaining the ability for Americans to get a mortgage and warned members not to enact policies that overcorrect the policy mistakes of the past.
Ranking Member Susan Collins (R-Maine) also expressed concern with the state of FHA’s finances, but acknowledged that it seems the FHA will “narrowly avoid” requiring an infusion of funds from Treasury. “A financially sound FHA is an important component of a healthy housing market,” she said. While Collins said that the FHA has played an important role in the market, she urged the Agency to pull back and make way for private capital. She also pointed out that the FHA has not maintained a 2 percent capital reserve ratio in its MMI Capital Reserve Account, which is a statutory requirement. In closing, Collins criticized the administration for failing to produce a comprehensive housing reform plan to stabilize the market and entice private capital back into the market.
Galante’s opening statement largely mirrored her testimony from last week’s House Financial Services Subcommittee hearing on HUD’s fiscal year (FY) 2013 budget request. She said for FY2013, HUD’s budget is $44.8 billion, which is an increase of more than $1.4 billion from FY2012. Of this, $9.4 billion is offset from projected FHA and Ginnie Mae receipts, leaving a net budget authority of $35.4 billion, or 7.3 percent below FY2012’s enacted level of $38.2 billion, she said.
Further, Galante said HUD is requesting $400 billion in loan guarantee authority for the MMI Fund, which will provide an estimated 800,000 single-family mortgages and $25 billion in loan guarantee authority for the General and Special Risk Insurance Fund (GI-SRI), which will provide an estimated 156,000 units in multifamily housing properties and an estimated 80,600 beds in healthcare facilities.
Galante also highlighted the extraordinary, but necessary, actions taken by the Obama administration and HUD to help keep families in their homes. Since April 2009, more than 5.6 million borrowers have received mortgage modifications and 14 million families have been able to refinance their homes, she said, adding that foreclosures are down by “nearly 50 percent.”
But, Galante noted that FHA’s expanded role in the housing market “is and should be temporary,” pointing out that FHA’s loan volume has declined 34 percent from its peak in 2009, and its market share is decreasing “for the first time since 2006.”
“Today, FHA’s total market share is 15.6 percent, down from 17 percent in 2010 and over 21 percent in 2009,” she said, “which is laying the ground work for private capital to return to the single-family market.”
Despite the positive results, Galante said FHA is experiencing “troubling issues” with the FHA-insured loan performance. “The books of business in the few years before 2009 have largely driven the high number of claims to the MMI Fund,” which has severely impacted its health, Galante said.
To strengthen the fund, HUD recently announced a 10 basis point (bps) annual premium increase on all FHA insured loans, as well as an additional 25 bps annual premium increase on “jumbo” loans. On top of this, “we announced a series of premium changes that will further increase receipts to FHA by over $ 1 billion in fiscal years 2012 and 2013, beyond the receipts included in the President’s budget submission,” Galante said. As a result of the Mortgage Settlement Agreement, “FHA will receive over $900 million compensation for losses associated with loans originated outside of FHA requirements, or for which FHA’s servicing requirements were violated.”
On top of future economic projections and added revenue from the recently announced premium increases and from the mortgage settlement agreement, “the Capital Reserve is estimated to have sufficient balances to cover all future projected losses without triggering a mandatory appropriation under the Federal Credit Reform Act.” Galante said HUD expects the MMI Capital Reserve Account to return to the congressionally mandated capital reserve ratio of 2 percent by 2015.
Question and Answer
The question-and-answer session, although short – only Murray and Collins were present at the hearing – was dominated by questions on the recent changes to the FHA Streamline Refinance Program and the MMI fund. Murray and Collins both expressed concern about the impact of the changes to the Streamline Refinance Program on the solvency of the MMI fund and questioned how many people would benefit. Galante said 2.5 million borrowers are eligible to benefit under the program’s new criteria, which will substantially reduce interest rate payments from “around 6 and a half percent down to 4-plus percent.” She reminded Murray and Collins that borrowers need to be current to qualify for the program, which greatly lowers the risk for the FHA, and in the long run, will improve its balance sheet because borrowers under stress will have their monthly costs reduced. Galante added that the FHA will net “a billion extra dollars” due to the recent FHA premium increases, further shoring up the MMI fund.
Galante also assured Collins and Murray that the MMI fund is in better shape than it was just a month ago because of the expected infusion of funds from the Servicer Settlement and the recent increases in premiums. Following up, Collins asked what would have to happen for the FHA to require a Treasury infusion despite the premium increase and settlement money. Galante said home prices would have to decline significantly, but indicated that the FHA is starting to “see some stabilization” in home prices. She also said that the FHA will continue to be vigilant, increasing premiums and enforcement actions while making changes to its REO policies.
Collins pointed out that the FHA is increasing premiums while at the same time significantly reducing fees and premiums under the Streamline Refinance Program. She asked Galante why the premiums do not offset. Galante said that borrowers eligible for the Streamline Refinance Program are already part of the FHA’s portfolio and are currently paying the yearly 55 basis point fee, adding that the program mainly affects interest rates and does not levy a refinance fee or increase mortgage insurance premiums, a significant deterrent to refinancing in the past. She said the administration’s new premium fee increases only affects new borrowers.
Murray said some lenders have been hesitant to use the Streamline Refinance Program because of its impact on their performance assessment under the Neighborhood Watch System, which compares lender performance. To ease those concerns, under the new Streamline Refinance Program, participating lenders are excluded from performance assessments, Murray said, asking Galante how lenders will still be held accountable for poor performance. Galante said lenders will still be held accountable, noting that whoever originates the loan is still accountable under FHA’s indemnification processes. “We don’t think these changes will have a material effect on [FHA’s] ability to monitor lenders,” she said.
Murray also asked Galante to explain the changes made to the Streamline Refinance Program around refinancing, highlighting a new stipulation requiring lenders to verify income at the time of refinance. Galante said the FHA has included new controls aimed at lowering the re-default rate of borrowers who use the program, but did not elaborate on those controls.
Collins expressed concern about the FHA’s statutory 2 percent capital reserve ratio, which has not been satisfied for three years in a row. Collins acknowledged that FHA’s actions after the crisis strained the MMI Capital Reserve Account, but asked Galante if she is confident that the combination of settlement monies and premium increases will allow the FHA to get back to the 2 percent ratio. Galante assured Collins that the FHA is not “solely depending on the settlement” to satisfy the capital reserve ratio requirement, noting that the FHA has doubled mortgage insurance premiums since 2009. She also said the FHA’s refinancing initiatives are allowing borrowers to stay current, avoiding costly defaults. However, Galante estimated that the capital reserve ratio would not reach its statutory minimum until “late 2012 or early 2015.”
Murray asked Galante to elaborate on the clarifications the FHA has made to its indemnification rules and how those clarifications will affect enforcement actions going forward. Galante said the most important change was defining “material and serious violation,” providing certainty to lenders on what they will be held accountable for. Following up, Murray asked about a recent request by Galante to strengthen the enforcement program, including lender indemnification requirements for direct endorsement lenders and expanding FHA’s authority to remove lenders from the program on a national basis. Galante said current indemnification rules only apply to the lender insurance program, which covers 70 percent of FHA’s volume, but only 30 percent of its lenders. The change to the indemnification requirements grants the FHA authority to get indemnities from smaller lenders, she said. In regard to her other request, Galante said it is “incredibly cumbersome to go after a lender when [FHA] sees a systematic problem occurring in multiple jurisdictions.” She said the requested authority give the FHA a more modern enforcement regime and allows them to properly punish systemic abuses.
Murray also asked about HUD’s REO-to-rental efforts. Galante said FHA is working with the government sponsored entities and the Federal Housing Finance Agency on identifying pilot REO-to-rental communities that have stock from all three agencies, but their options seem limited. She said the goal is to find communities with enough properties to make private management cost-effective, and hopes to find a community satisfying those requirements “in the next month or two.” Additionally, she said the FHA is exploring options to ramp up its note-sale program.
For testimony and a webcast of the hearing, please click here.
,Blog Tags:,Blog Categories:,Blog TrackBack:,Blog Pingback:No,Hearing Summaries Issues:Housing,Hearing Summaries Agency:House Appropriations Committee,Publish Year:2012
At a Senate Appropriations Subcommittee on Transportation, Housing and Urban Development, and Related Agencies hearing on March 8, Carol Galante, Acting Federal Housing Administration (FHA) Commissioner and Assistant Secretary for the Department of Housing and Urban Development (HUD), updated members on the status of the Mutual Mortgage Insurance Fund (MMI Fund) and defended the Obama administration’s proposal to increase FHA’s 2013 budget.
In her opening remarks, Chairman Patty Murray (D-Calif.) roundly praised the work the FHA has done to support the housing market in the aftermath of the 2008 crisis, pointing out that the FHA now supports nearly 30 percent of the purchase market and 16 percent of all loans, including refinances. However, she also acknowledged that the FHA’s outsized role in the market has exposed it to greater risk, including a substantial risk to the MMI Fund’s health.
Murray highlighted the Obama administration’s recent efforts to shore up the finances of the FHA and the MMI fund, which includes premium increases, changes to the FHA’s Streamline Refinance Program, and a $900 million payout from the recent Mortgage Servicer Settlement, but she noted that these proposals “aren’t without their own risks, costs and moral hazard.” In closing, Murray urged Congress not to lose sight of the role that FHA played in maintaining the ability for Americans to get a mortgage and warned members not to enact policies that overcorrect the policy mistakes of the past.
Ranking Member Susan Collins (R-Maine) also expressed concern with the state of FHA’s finances, but acknowledged that it seems the FHA will “narrowly avoid” requiring an infusion of funds from Treasury. “A financially sound FHA is an important component of a healthy housing market,” she said. While Collins said that the FHA has played an important role in the market, she urged the Agency to pull back and make way for private capital. She also pointed out that the FHA has not maintained a 2 percent capital reserve ratio in its MMI Capital Reserve Account, which is a statutory requirement. In closing, Collins criticized the administration for failing to produce a comprehensive housing reform plan to stabilize the market and entice private capital back into the market.
Galante’s opening statement largely mirrored her testimony from last week’s House Financial Services Subcommittee hearing on HUD’s fiscal year (FY) 2013 budget request. She said for FY2013, HUD’s budget is $44.8 billion, which is an increase of more than $1.4 billion from FY2012. Of this, $9.4 billion is offset from projected FHA and Ginnie Mae receipts, leaving a net budget authority of $35.4 billion, or 7.3 percent below FY2012’s enacted level of $38.2 billion, she said.
Further, Galante said HUD is requesting $400 billion in loan guarantee authority for the MMI Fund, which will provide an estimated 800,000 single-family mortgages and $25 billion in loan guarantee authority for the General and Special Risk Insurance Fund (GI-SRI), which will provide an estimated 156,000 units in multifamily housing properties and an estimated 80,600 beds in healthcare facilities.
Galante also highlighted the extraordinary, but necessary, actions taken by the Obama administration and HUD to help keep families in their homes. Since April 2009, more than 5.6 million borrowers have received mortgage modifications and 14 million families have been able to refinance their homes, she said, adding that foreclosures are down by “nearly 50 percent.”
But, Galante noted that FHA’s expanded role in the housing market “is and should be temporary,” pointing out that FHA’s loan volume has declined 34 percent from its peak in 2009, and its market share is decreasing “for the first time since 2006.”
“Today, FHA’s total market share is 15.6 percent, down from 17 percent in 2010 and over 21 percent in 2009,” she said, “which is laying the ground work for private capital to return to the single-family market.”
Despite the positive results, Galante said FHA is experiencing “troubling issues” with the FHA-insured loan performance. “The books of business in the few years before 2009 have largely driven the high number of claims to the MMI Fund,” which has severely impacted its health, Galante said.
To strengthen the fund, HUD recently announced a 10 basis point (bps) annual premium increase on all FHA insured loans, as well as an additional 25 bps annual premium increase on “jumbo” loans. On top of this, “we announced a series of premium changes that will further increase receipts to FHA by over $ 1 billion in fiscal years 2012 and 2013, beyond the receipts included in the President’s budget submission,” Galante said. As a result of the Mortgage Settlement Agreement, “FHA will receive over $900 million compensation for losses associated with loans originated outside of FHA requirements, or for which FHA’s servicing requirements were violated.”
On top of future economic projections and added revenue from the recently announced premium increases and from the mortgage settlement agreement, “the Capital Reserve is estimated to have sufficient balances to cover all future projected losses without triggering a mandatory appropriation under the Federal Credit Reform Act.” Galante said HUD expects the MMI Capital Reserve Account to return to the congressionally mandated capital reserve ratio of 2 percent by 2015.
Question and Answer
The question-and-answer session, although short – only Murray and Collins were present at the hearing – was dominated by questions on the recent changes to the FHA Streamline Refinance Program and the MMI fund. Murray and Collins both expressed concern about the impact of the changes to the Streamline Refinance Program on the solvency of the MMI fund and questioned how many people would benefit. Galante said 2.5 million borrowers are eligible to benefit under the program’s new criteria, which will substantially reduce interest rate payments from “around 6 and a half percent down to 4-plus percent.” She reminded Murray and Collins that borrowers need to be current to qualify for the program, which greatly lowers the risk for the FHA, and in the long run, will improve its balance sheet because borrowers under stress will have their monthly costs reduced. Galante added that the FHA will net “a billion extra dollars” due to the recent FHA premium increases, further shoring up the MMI fund.
Galante also assured Collins and Murray that the MMI fund is in better shape than it was just a month ago because of the expected infusion of funds from the Servicer Settlement and the recent increases in premiums. Following up, Collins asked what would have to happen for the FHA to require a Treasury infusion despite the premium increase and settlement money. Galante said home prices would have to decline significantly, but indicated that the FHA is starting to “see some stabilization” in home prices. She also said that the FHA will continue to be vigilant, increasing premiums and enforcement actions while making changes to its REO policies.
Collins pointed out that the FHA is increasing premiums while at the same time significantly reducing fees and premiums under the Streamline Refinance Program. She asked Galante why the premiums do not offset. Galante said that borrowers eligible for the Streamline Refinance Program are already part of the FHA’s portfolio and are currently paying the yearly 55 basis point fee, adding that the program mainly affects interest rates and does not levy a refinance fee or increase mortgage insurance premiums, a significant deterrent to refinancing in the past. She said the administration’s new premium fee increases only affects new borrowers.
Murray said some lenders have been hesitant to use the Streamline Refinance Program because of its impact on their performance assessment under the Neighborhood Watch System, which compares lender performance. To ease those concerns, under the new Streamline Refinance Program, participating lenders are excluded from performance assessments, Murray said, asking Galante how lenders will still be held accountable for poor performance. Galante said lenders will still be held accountable, noting that whoever originates the loan is still accountable under FHA’s indemnification processes. “We don’t think these changes will have a material effect on [FHA’s] ability to monitor lenders,” she said.
Murray also asked Galante to explain the changes made to the Streamline Refinance Program around refinancing, highlighting a new stipulation requiring lenders to verify income at the time of refinance. Galante said the FHA has included new controls aimed at lowering the re-default rate of borrowers who use the program, but did not elaborate on those controls.
Collins expressed concern about the FHA’s statutory 2 percent capital reserve ratio, which has not been satisfied for three years in a row. Collins acknowledged that FHA’s actions after the crisis strained the MMI Capital Reserve Account, but asked Galante if she is confident that the combination of settlement monies and premium increases will allow the FHA to get back to the 2 percent ratio. Galante assured Collins that the FHA is not “solely depending on the settlement” to satisfy the capital reserve ratio requirement, noting that the FHA has doubled mortgage insurance premiums since 2009. She also said the FHA’s refinancing initiatives are allowing borrowers to stay current, avoiding costly defaults. However, Galante estimated that the capital reserve ratio would not reach its statutory minimum until “late 2012 or early 2015.”
Murray asked Galante to elaborate on the clarifications the FHA has made to its indemnification rules and how those clarifications will affect enforcement actions going forward. Galante said the most important change was defining “material and serious violation,” providing certainty to lenders on what they will be held accountable for. Following up, Murray asked about a recent request by Galante to strengthen the enforcement program, including lender indemnification requirements for direct endorsement lenders and expanding FHA’s authority to remove lenders from the program on a national basis. Galante said current indemnification rules only apply to the lender insurance program, which covers 70 percent of FHA’s volume, but only 30 percent of its lenders. The change to the indemnification requirements grants the FHA authority to get indemnities from smaller lenders, she said. In regard to her other request, Galante said it is “incredibly cumbersome to go after a lender when [FHA] sees a systematic problem occurring in multiple jurisdictions.” She said the requested authority give the FHA a more modern enforcement regime and allows them to properly punish systemic abuses.
Murray also asked about HUD’s REO-to-rental efforts. Galante said FHA is working with the government sponsored entities and the Federal Housing Finance Agency on identifying pilot REO-to-rental communities that have stock from all three agencies, but their options seem limited. She said the goal is to find communities with enough properties to make private management cost-effective, and hopes to find a community satisfying those requirements “in the next month or two.” Additionally, she said the FHA is exploring options to ramp up its note-sale program.
For testimony and a webcast of the hearing, please click here.