Robert E. Story Jr., CMB, chairman of the Mortgage Bankers Association (MBA), testified before the House Financial Services Committee at a hearing on the Federal Housing Administration's (FHA) Fiscal Year 2009 actuarial report. The following is Mr. Story's oral statement to the committee, as prepared for delivery: "Thank you, Chairman Frank.
"Given the heightened role FHA is playing in our country's housing market, today's hearing is both timely and vitally important. Last month's report on FHA's financial situation was a wake-up call to all of us. It raised the urgency for strengthening this important agency so that it can continue to serve borrowers and provide liquidity to our struggling economy.
"At MBA, we have set forth a plan that we believe will help to strengthen and modernize FHA, and today, I will provide some brief points on our proposal.
"The report issued by FHA in November revealed that FHA's capital reserve ratio has fallen well below the required two percent. But given the state of the economy, this really shouldn't surprise anyone. FHA is not immune to the problems that have hit the entire housing sector, from small mortgage firms to giants like Fannie Mae and Freddie Mac.
"Additionally, rising unemployment has led more FHA borrowers to fall behind on their mortgages. Falling home prices have resulted in more foreclosures and greater losses on each property. Add to that FHA's mission of helping underserved borrowers, and you can understand why the agency's reserves are being affected.
"While an analysis of the report raises serious concerns with FHA, there are also reasons to be optimistic.
"FHA has taken a number of proactive steps to improve its risk management, and I want to commend Secretary Donovan and Commissioner Stevens for their aggressive approach. Improvements to FHA's appraisal procedures, the streamline refinance program, and lender approvals are all intended to put FHA on a sounder financial footing. We also look forward to reviewing the proposals Secretary Donovan laid out this morning.
"I would also note that FHA no longer insures loans with seller-funded downpayment assistance. The report found these loans bare primary responsibility for FHA's decline in reserves. If we were to remove these loans entirely from the analysis, FHA's capital reserves would be above the required two percent.
"Even with stronger underwriting and a ban on seller-funded downpayments, it is clear that more needs to be done. In recognition of this, MBA has put forward a proposal that will help bring FHA into the 21st Century, and we are working on additional recommendations.
"First, Congress needs to appropriate the funding it authorized under HERA for FHA's staffing and technology needs. Allowing FHA to hire additional staff to keep up with its growing loan volume is good management. FHA makes money for the federal government. It should be allowed to use some of its money for its own staffing and technology needs. FHA should also be permitted to compensate its staff at the same pay scales used by other federal financial regulators.
"I want to commend this committee for supporting HR 3146, the 21st Century FHA Housing Act, which authorizes an additional $72 million annually for FHA. Now, we need to redouble our efforts to make certain this money is appropriated.
"Second, we need to improve the quality of FHA originations. One way to protect the soundness of FHA is to ensure that FHA mortgage lenders and brokers are equipped to protect consumers and taxpayers from undue loss. At MBA, we strongly believe that rigorous licensing and registration requirements, as well as increased net worth and minimum bonding requirements, are essential components of any framework.
"Mr. Chairman, my company has been making FHA loans since the 1950s. In all our experience, I can't think of a more important time in FHA's history than now.
"MBA appreciates all that FHA is doing to provide stability, liquidity and affordability during this difficult economic downturn. I wouldn't want to envision a mortgage market without it. Were it not for FHA, many Americans would not have access to record low interest rates, tax credits, and other measures intended to preserve homeownership and jump-start lending.
"I want to close by urging this committee to be proactive and take the steps necessary to make sure FHA is there now and in the future, serving potential homeowners and supporting our mortgage market."
For a copy of Mr. Story's full written statement, click here.
For more information, visit www.mortgagebankers.org.