Will Our New FHA Commissioner Be Consumer Friendly?

by Peter G. Miller
July 20th, 2009

David Stevens has now been sworn as our new FHA Commissioner. To Mr. Stevens we say congratulations and now let’s get down to work.

The FHA currently provides mortgage insurance for some 35 percent of all mortgages now being originated. That’s a substantial figure and up significantly from a few years ago when the FHA mortgage loan program faced stiff competition from so-called “nontraditional” loans, you know that mortgages which are now driving people into foreclosure and bankruptcy.

What can Mr. Stevens do to help the public?

First, speak with borrowers. There are no shortage of lenders and brokers who can reach your office, but your clients are the borrowers you serve.

Second, make sure that the FHA sticks to its historic mission. That means helping entry-level buyers get their first homes and assisting individuals with loans that are simple, understandable, fair and insured.

Third, you need to tell the public about the great job that the FHA is doing when borrowers are delinquent. You need to talk about “cure” rates for troubled loans.

Fourth, you need to crack down on the obvious conflicts that arise when brokers and builders have mortgage affiliates that originate FHA loans. Such arrangements cloud the obligations of the broker to clients and in the worst cases harm buyers by underwriting mortgages for which the borrowers are unqualified.

Fifth, you need to really think about whether the FHA should be insuring reverse mortgages. Not should the FHA ask Congress for $800 million to support the home equity conversion mortgage (HECM) program, but should the FHA be insuring loans which are increasingly risky.

Sixth, you have to loudly and plainly answer FHA critics, some of whom are seeding the media and Capitol Hill with statistical garbage and worries about the stability of the FHA program.

They would love for you to fail, thus ridding the world of a government-sponsored program that competes directly with firms in the private sector.  The fact that the FHA does good work and has insured more than 34 million mortgages since its founding means nothing to such critics because, after all, their opposition is a matter of principle….

Seventh, the FHA should stop giving money to the Treasury Department — roughly $13.5 billion under the Bush Administration, money which belongs either in the FHA reserve fund or which should be returned to borrowers when loans are repaid.

In other words, the FHA should be re-established as a mutual insurance plan, not a for-profit effort where excess dollars go to the Treasury as a back-door tax paid by FHA borrowers.

So good luck Mr.Commissioner. The housing market is in deep trouble, good times may well be years away, and a successful FHA benefits everyone.

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