Arndownside risk is that a minimum score of 620 could reducernaffordable creditrnoptions for many borrowersrnespecially penalizing some with a one-timerncredit damaging life event.  Eliminating FHA as an option forrncredit-impaired borrowers might make the market fertile ground for a new subprimernmarket and/or predatory lending.</p<ul class="unIndentedList"

On the other hand, larger loansrntend to perform better comparedrnwithrnsimilar smaller loans, and,rnas borrowers are already charged an additional 25rnbasis points for these loans, they actually improvernthe performancernofrnthe MMI Fund andrnprovide additional revenue. Givenrnthat loans abovern$625,000rncomprise a small percentagernofrnFHA’s portfolio, but have significant positivernattributes, policymakers may consider extending the limits untilrnthe MMI Fund is financially stable.</p

Also, in recentrnyears, FHA has increased its enforcement of agency-approved lenders whichrnStevens said, when warranted, is certainly the right thing to do for the fund.rnHowever, given current market conditions, FHA must take a balanced approach tornenforcement to guard against further credit tightening.</p

MBA supports high standards for all FHA lenders inrnorder to protect the agency’s viability, thernlender’s reputation, and the reputation of the industry. There must, however, be a reasonablernmargin for human error, especially when thernerror is notrnthe cause of the delinquency or default. MBA would staunchly opposernefforts that allow FHA to go beyondrnreasonable standards of lender enforcement.  </p

Stevens also suggested some ofrnthe recent regulatory changes will affect FHA. The new definition of QualifiedrnMortgage establishes a safe harbor for lenders and Stevens said MBA strongly believes that for the foreseeable future lenders willrnbe extremely wary of originatingrnloans that fall outsidernofrnthe QM safe harbor. Consequently, if thernthresholdrnis not at least expanded, thernavailability of FHA credit for underserved populations – first-time, minority,rnand low- andrnmoderate-incomernborrowers – may bernunduly limited, jeopardizing FHA’s ability to fulfillrnitsrnimportant role.</p

ThernDodd-Frank risk retention rule as currently drafted wouldrnrequire families to make arn20 percent downpayment andrnmeet relatively lowrnDTI andrnother stringent requirements. The proposed QRM definitionrnappears to conflict directly withrnthernAdministration’s planrnto shrink FHA from its current role of financing one-third of all mortgages andrnone-half of all purchase mortgages because itrnwould make it far more difficult for private capital to re-enter the housingrnfinance market.  The widerndisparity between FHA’s downpaymentrnrequirement of 3.5 percent and the QRM requirement of 20 percent would force over-utilization of FHArnand other government programs. </p

Thomas told the Senators that, without the FHA, the housing downturnrnand economic recession would have been far worse for the nation.  “FHArnhelped fill the void over the past five years after private lending fled thernmarket by providing safe, affordable access to mortgage credit to millions ofrnAmericans who wanted to purchase a home.  Had FHA not stepped in to fill the market gap,rnmany families would have been unable to purchase homes, current homeownersrnwould have experienced far greater drops in equity and their home’s value,rnand our nation’s economy would be much further from a recovery.”</p

Thomas said that FHA has always been a staple in home financing; neverrnoffering risky products, using predatory lending practices, or engaging inrnexotic underwriting.  Yet, like allrnlenders, it incurred great financial losses as a result of overall market conditionsrnthat led to millions of foreclosures. </p

NAR is confident, Thomas said, that FHA has already taken many of thernnecessary steps to stabilize the fund as well as numerous administrativernchanges to mitigate risk. “FHA currently has one of the strongest books onrnrecord and the quality of borrowers has skyrocketed; continued marketrnimprovements and rising home prices will also help improve the fund’s futurernfinancial condition,” he said.</p

He cautioned about making arbitrary changes to FHA, such as furtherrnincreasing costs to consumers or limiting the use of the program to certainrntypes of buyers, only for the sake of luring back private markets.   Any actions designed to deliberately lowerrnFHA’s market share could disrupt the availability and affordability of mortgagerncredit and undermine the fragile real estate recovery, he said.</p

NAR welcomes a time when FHA’s market share is reduced to its morerntraditional levels of 10 to 15 percent of the market, and the private lendingrnmarket is once again robust, Thomas said, but we are not there yet. “Uncertaintyrnabout pending financial regulations and the future of the secondary mortgagernmarket are keeping private lenders from returning to mortgage markets.</p

“Once the rules for mortgage finance are resolved and housing pricesrnstabilize nationwide we anticipate that private investors will return to the marketrnand FHA’s market share will return to more traditional levels.”

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