Remarks by HUD Secretary Preston on FHASecure expansion and pending congresssional legislationMortgagePress.comHUD, Steve Prestion, FHASecure, FHA Commissioner Brian Montgomery
Good morning. I wanted to join FHA Commissioner Brian Montgomery
to talk about the next phase of FHASecure and discuss housing
legislation pending before Congress.
As you know, in response to the housing crisis, FHA has expanded
its mission to help more Americans facing foreclosure refinance
into safer, more affordable mortgages. In late August 2007,
President Bush introduced a new product called FHASecure for
homeowners who were unable to make their mortgage payments after
their interest rate reset. Since then, more than 260,000 families
have refinanced with FHA. Hundreds of thousands more will refinance
with FHA by the end of the year.
Starting on July 14th, FHASecure will begin to provide
additional assistance to subprime borrowers with adjustable rate
mortgages, and help to restore liquidity and stability to the
markets. It will assist families who have missed up to three
monthly mortgage payments over the previous 12 months or have
experienced temporary economic hardship, such as loss of overtime
or medical needs, as well as those who were affected by payment
shock. The expansion will also encourage lenders to voluntarily
write down outstanding subprime mortgage principal.
We estimate this plan will help an additional 100,000 families
refinance into more affordable FHA-insured loans by the end of the
year.
The combination of all efforts under FHASecure will help a total
of 500,000 families by year's end. Our monthly refinancings this
fiscal year are already more than five times the level of 2006. It
is clear people are coming to us as their solution for the
future.
As part of this expansion, we are instituting a fairer, more
flexible premium pricing structure at FHA. Like any other insurance
company, FHA will begin pricing the insurance premiums for these
borrowers according to their credit risk. This will eliminate a
pricing inequity that treats applicants with a low risk of default
the same as those with a high risk of default.
Risk-based pricing will benefit many borrowers, especially
lower-income American families. In FHA's portfolio, families with
the lower incomes actually have higher FICO scores. These are
hard-working American families who live within their means and pay
their bills on time. Pricing mechanisms should reflect that
fact.
The bill currently moving through the Senate would place a
moratorium on risk-based pricing. That would be a big mistake. FHA
will have to increase premiums across the board on all borrowers
or, alternatively, seek taxpayer funds in October to cover
potential losses, or cut back on the program at the very time we
are an island of hope for hundreds of thousands of Americans.
In addition to a possible moratorium on risk-based pricing,
Congress may require FHA to accept mortgage insurance loans with
seller-funded downpayment assistance. The option for FHA not to
insure such mortgages would be removed. This would not only be
costly for FHA but could be expensive for taxpayers, too. Even if
FHA raised premiums to a max of 2.25 percent upfront for all
borrowers across the board, it would still need to seek an
appropriation to cover the losses caused this practice.
We have issued a regulation to address seller-funded
downpayments. We are in a comment period right now, and I intend to
look hard at those comments. Therefore, I do not want to discuss
this matter in great detail. The comments are important to us and
we will look at them carefully. But the reason for our efforts to
regulate in this area is that FHA-backed mortgages with
seller-funded downpayments go into foreclosure at three times the
rate of FHA's remaining portfolio. Because of a lack of equity,
losses on these seller-funded downpayment mortgages are
significantly greater. We remain solvent and in good shape today.
But no insurance company can continue to absorb losses of this
magnitude.
At the end of the day, I hope reason will prevail. FHA is more
important to the mortgage market now than it has been for many
years. FHA's volume and market share continue to grow every month.
I hope final legislation from Congress would put forward actions
that can keep FHA solvent, self-financing, and responsibly able to
help homeowners. Taxpayers should not have to absorb preventable,
foreseeable losses.
We are looking for the Congress to pass responsible legislation
that will help FHA continue to provide stability for the housing
market and provide government-backed mortgages for low-and-moderate
income families.
Thank you.
For more information, visit www.fha.gov.
