MBA's Courson Testifies on FHA Reform Act

 

John A. Courson, President and CEO of the Mortgage Bankers Association, testified today before the House Financial Services Subcommittee on Housing and Community Opportunity at a hearing on the FHA Reform Act of 2010.

Below is Mr. Courson’s oral statement before the committee, as prepared for delivery.

“I appear before you today not only as President and CEO of MBA but also as a former chair of MBA and an FHA lender for over 40 years.  MBA is pleased to see the attention that the Financial Services Committee, and this subcommittee in particular, continues to pay to the Federal Housing Administration, its programs, and its finances.

“Today, FHA finds itself at a critical crossroads.  Last November’s actuarial report was a wake-up call to us all, and it highlighted the very real threats to FHA’s continued solvency.  All of us here today support FHA and the important role it plays in promoting homeownership.  However, that role could be greatly diminished, and even disappear, if we don’t get FHA’s fiscal house in order. 

“HUD Secretary Donovan and FHA Commissioner Stevens should be commended for the proactive steps they have taken to protect the Mutual Mortgage Insurance Fund.  They’ve made improvements to FHA’s appraisal procedures, its streamline refinance program, the process for approving lenders, and they have kept in place the prior Administration’s ban on seller-funded downpayment assistance.

“More recently, the Obama Administration put forward a package of reforms, some of which are being implemented administratively, while others require legislative action.  I would like to comment on these changes from the perspective of MBA’s diverse membership.

“First, MBA supports HUD’s proposal to increase the cap on the annual mortgage insurance premium for FHA’s single-family programs.  Raising premiums is never desirable, but if done prudently, and if coupled with decreases in the upfront MIP, this step has the potential to strengthen FHA’s books while actually lowering closing costs for many borrowers.

“HUD also proposes to expand and extend indemnification requirements to all FHA single-family lenders.  The initial reaction from our members has been largely positive, but we would also urge great care in how this change is implemented.

“Lenders take indemnification very seriously.  If lenders fear unreasonable standards or penalties, they could become overly cautious.  The details of any proposal in this area will be critical, and we urge the subcommittee to move carefully to ensure that responsible lenders are not discouraged from participating in the FHA program.

“The third legislative change sought by the Administration would give FHA the authority to suspend a lender nationwide on the basis of the performance of one of its regional branches.  We all support rooting out fraudulent lenders.  They hurt borrowers, put the MMI Fund at risk, and they are a stain on our entire industry.

“At the same time, suspending a lender is a very serious action and should be undertaken cautiously and only when justified.  MBA urges this subcommittee to ensure that this policy allows lenders ample opportunity to remediate any problems within a field office before receiving a nationwide sanction.  These policy changes should be clear, transparent, and apply equally to all lenders.

“I also want to comment briefly on some of the non-legislative changes proposed by FHA.  MBA supports increasing the downpayment to 10 percent for FHA’s riskiest loans – loans where the borrower has a credit score below 580.  However, we would caution policymakers to resist imposing an across-the-board increase to the FHA downpayment requirement, as this would have a chilling effect on the ability of FHA to meet the credit needs of the borrowers it serves.

“MBA is also concerned about the 50 percent reduction in maximum seller concessions, which are typically used to cover closing costs.  This change will primarily impact low-to-moderate, first-time, and minority borrowers – the very populations FHA is designed to help.

“One step FHA has yet to take, but should, is to reexamine its TOTAL Scorecard underwriting system.  Such an evaluation should review the thoroughness of the scorecard’s borrower risk assessment capabilities.

“Finally, I can’t stress enough the importance of ensuring that FHA receives adequate funding for upgrading its antiquated technology and hiring additional staff – both for its single-family and multifamily programs.  The House has already passed H.R. 3146, the 21st Century FHA Housing Act, and with appropriations season just around the corner, we need to redouble our efforts to make certain FHA gets this needed funding.

“Madame Chairwoman, there’s no sugarcoating the unsafe position in which FHA finds itself today.  We simply must take the strong and necessary steps to protect its vital programs, the MMI Fund and, ultimately, the taxpayers who stand behind it.  MBA stands ready to work with you, Secretary Donovan, and Commissioner Stevens in this important endeavor.  Thank you.”