David G. Kittle, CMB, Vice Chairman of the Mortgage Bankers Association (MBA) and president of Principle Wholesale Lending Inc. of Louisville, Ky., testified before the Senate Appropriations Subcommittee on Transportation, Housing and Urban Development and Related Agencies. In his testimony, Mr. Kittle discussed the important role the Federal Housing Authority (FHA) will play in the current mortgage market turmoil.
Below is Mr. Kittle's oral testimony, as prepared for delivery.
"When I started in the mortgage business, FHA programs helped us serve many borrowers who otherwise would not get a loan. In 1983, when I was a loan officer, over 90 percent of the loans I closed were FHA insured. During the latter part of the 1990s, FHA loans made up 38 percent of our volume. In the past couple of years, only 2 percent of our business went to FHA.
"My experience with the FHA program is similar to many other lenders. Financial institutions progressed, reacting to quickly changing markets. Unfortunately, during this time, FHA did not. FHA was not adapting to meet borrowers' changing needs. As a result, FHA became a 'bit' player in the market.
"MBA strongly supports FHA and believes it has a vital and important role to play in today's troubled marketplace. FHA's relevance in providing affordable homeownership financing has been hampered by statutory restrictions and bureaucratic obstacles over the last decade.
"With the current situation in the market, there is a strong need for a robust and nimble FHA. FHA reform must be completed as soon as possible. FHA needs to be given the tools to respond to an ever-changing market.
"With the new focus on the ability of FHA to help during this housing crisis, we strongly believe, and have been advocating for several years, Congress should empower FHA to allow it to meet today's needs and anticipate tomorrow's. MBA believes changes should be made in three areas - FHA needs more flexibility to: Introduce innovative new products, invest in new technology; and manage their human resources.
"MBA appreciates Congress' and the Administration's thoughtful approaches to developing rescue plans involving FHA for borrowers in troubled loans. MBA is carefully reviewing the Administration's proposal to expanding FHASecure and Chairmen Dodd and Frank's proposals for a more extensive FHA program to keep homeowners in their homes and avoid foreclosure. It is in the best interest of the homeowner, the lender, and the community to do all that can be done to keep the borrower in their home. Additional personnel will also be critically necessary for FHA to meet an enhanced and enlarged mission.
"MBA notes with great concern, in the Administration's Fiscal Year 2009 Budget proposal, the FHA mutual mortgage insurance fund threatens to go into the red next year unless changes to the existing program are made or additional appropriations are provided. MBA agrees with the Administration the FHA's mutual mortgage insurance fund would run in the black, with little or no premium increases necessary, if FHA reform proposals were passed this year.
"Specifically, GAO has mentioned the technology issue in reports on FHA modernization efforts. FHA told GAO its systems are poorly integrated, expensive to maintain, and do not fully support the agency's operations and business requirements. We urge Congress to address these critical concerns.
"In conclusion, FHA has an important role to play in the market in saving homes and assisting the underserved. For low- and moderate-income families, FHA provides borrowers the best opportunity to become successful and sustainable homeowners.
"However, over the past few years, the loss of market presence meant we lost FHA's impact. We now know the result was some families turned to more expensive financing.
"Now is the time to reverse the trend. FHA stands at a critical crossroads. MBA urges Congress to enact legislation to reform FHA and give it all the tools it needs to increase its availability to borrowers, promote consumer choice, and ensure its ability to continue serving American families. MBA stands ready to work with you on this important issue."
Mr. Kittle's full written testimony can be found at www.mortgagebankers.org.