MBA Presents Blueprint for the Futures of Ginnie Mae and FHA

The Mortgage BankersrnAssociation (MBA) has issued a blueprint for keeping Ginnie Mae and FHArn”available and relevant into the future.”  Citing the dangerously low levels of FHA’srncapital reserves as revealed last fall and the increased reliance of thernhousing finance system on FHA guarantees, MBA convened a Council on the Futurernof FHA and Ginnie Mae in November 2009 “to begin an extensive retrospectivernon the housing boom and subsequent bust, including discussing recommendations onrnhow to sustain FHA and Ginnie Mae.”  </p

MBA’srnrecommendations for each agency are divided into three categories:  Capacity and Resources, Program Eligibility;rnand Operations and Delivery of Services. rnWe will summarize them in the same format.</p

FHA Capacity and Resources</p

Even before thernrecent explosion in loan volume, FHA has operated at insufficient staffingrnlevels.  The agency should be given thernnecessary resources to quickly recruit and employ additional staff withrnrelevant mortgage market expertise. rnFHA’s hiring authority should be separated from that of the Departmentrnof Housing and Urban Development in order to speed up the hiring process andrnseparate it from “on-going budgetary continuing resolutions.”  Both FHA and Ginnie Mae should have thernability to recruit and pay staff as a higher federal pay scale on a par withrnother agencies such as FDIC and the Securities and Exchange Commission.</p

FHA should undertakernappropriate and up-to-date training of staff in real estate finance andrnresidential lending including specialized training for its multi-family and healthcarernprograms.</p

FHA’s informationrntechnology was developed and exists in a fragmentary manner making changesrnexpensive and time consuming.  Eachrnprogram office develops applications independently, causing redundancy and lackrnof integration.  MBA recommends that FHArnreceive Working Capital Funds through direct appropriation and be allowed torndevelop and implement needed IT systems independent of HUD.  FHA should also develop and apply a fraudrnmonitoring and reporting tool as early in the origination process as possible.</p

The Associationrnurges the agency to completely reexamine FHA TOTAL Scorecard in order tornimprove its reliability and functionality especially the thoroughness of itsrnborrower risk assessment capabilities. rnOnce that assessment is conducted and subsequent improvements are inrnplace, FHA should provide lenders who rely on TOTAL with rep and warrant reliefrnand an exemption from Neighborhood Watch.</p

FHA should considerrna separate risk management practice that would take place after the endorsementrnand involve expert third-party providers to help validate the loan againstrnunderwriting guidelines as well as uncover any instances of materialrnmisrepresentation.</p

Finally, FHA shouldrnmeet with lenders to determine where the LEAN Program, developed in 2008 tornmanage and improve key customer-interface processes, has not met expectationsrnand determine how to correct the program.</p

Program Eligibility</p

The temporary loanrnlimits established for FHA by the Economic Stimulus Act of 2008 have causedrnsome policymakers and industry leaders to consider whether FHA is being true tornits original mission to help meet the housing needs of middle-income families.   Homebuyers who are able to qualify for loansrnat the upper loan limit in designated high-cost areas need an income of overrn$180,000 at current interest rates. rnWhere one lives generally shapes one’s opinion about whether a borrowerrnearning at that level meets the definition of FHA’s mission population.  To date, use of FHA loans at those jumbo loanrnlevels has been fairly small. </p

As private lendersrnreturn to the market, the need to maintain the high limits should bernrevisited.  MBA supports a decrease inrnthe limit after the stabilization of the housing market. Limits should be determinedrnbased a discussion of whether there should be a single national standard orrncounty-by-county based on one of several formulae.  A mechanism should be developed to thatrnlimits bear a reasonable relation to median home prices and take intornconsideration the conforming loan limits of the Enterprises.</p

MBA recommends thatrnFHA continue to meet with industry groups, housing advocates and others to helprndevelop solutions to keep the Home Equity Conversion Mortgage (HECM) viable,rnspecifically addressing structural impediments such as upfront fees.</p

Operation and Delivery of Services</p

Protection therninsurance fund is the primary responsibility of the FHA Commissioner and he/shernshould have the ability to adjust premiums and underwriting guidelines asrneconomic situations warrant.  However,rnthe HUD General Counsel has recently said that FHA can increase the minimumrndown payment requirement, currently at 3.5 percent, without legislation.  MBA recommends that any such change undergo arnformal administrative process.</p

Despite the hugernincrease in volume of loans, currently the only mechanism FHA has to suspend problemrnlenders is the Mortgagee Review Board. rnUsing this vehicle can take several weeks or even months.  MBA believes the Commissioner should have thernauthority to temporarily suspend a lender pending a more expansive review andrnvisit.  The lender, unless criminalrnactivity is suspected, should be afforded due process and allowed thernopportunity to address FHA concerns before suspensions are made public.</p

FHA’s multi-familyrnprograms have historically provided many benefits to distressed neighborhoodsrnat little cost to the program however, in the current environment it is fair tornassume some increase in defaults.  FHArnshould monitor the increased use of its financing for market rate multifamilyrnand healthcare programs where vacancies have risen over the past threernyears.  However, MBA encourages FHA tornact judiciously, balancing the need for rental housing with risk managementrnchanges, particularly for working families. rnFHA’s plan to apply tighter underwriting standards across all marketsrnuniformly will slow the supply of credit even where market fundamentals arernimproving. </p

Finally, MBArnrecommends that FHA examine the existing Homeownership Center (single family)rnand Hub/Field Office (multi-family) structure to improve efficiency andrnconsistency.</p

RECOMMENDATIONS FORrnGINNIE MAE        </p

Capacity and Resources</p

As with FHA, MBArnfeels that Ginnie Mae is operating at staff levels insufficient to manage whatrnhas been a 400 percent increase in securities issued since 2007 and thatrnadditional staffing resources be a top priority.</p

Ginnie Mae wasrnexempted from the Credit Reform Act of 1990, but the Office of Management andrnBudget (OMB) has frequently suggested it be placed under that umbrella.  MBA opposes such a move Ginnie Mae would thenrnbe required to have all of its funding appropriated by Congress instead ofrnpaying its expenses out of receipts.  MBArnalso recommends it be allowed to develop a reserve against potential credit orrncounterparty losses.</p

Operations and Delivery of Services</p

Recently Ginnie Maernhas attempted to better align its policies with the independent mortgage bankerrnbusiness model by, for example, allowing single loan pooling and permittingrnlenders to issue pools at any time of the month both of which improve the flowrnof liquidity.  Participation in thernGinnie Mae Program can require significant liquidity and, at the same time,rnobtaining funding for advances for many non-depository institutions can berndifficult.  MBA requests that Ginnie Maernexplore program changes to help address the liquidity issues while stillrnprotecting the program from unnecessary risk</p

The operation of thernHECM program has been imperiled by the closing of Fannie Mae’s purchase windowrnfor HECM mortgages.  Ginnie Mae hasrnissued HMBS backed by HECM loans since 2007 but these got off to a slowrnstart.  The lack of other options recentlyrnled to an increase in use of HMBS by larger issuers but there are only ninernapproved Ginnie Mae HMBS issuers and only five are currently active.  MBA recommends that Ginnie Mae make an effortrnto attract more qualified and well-capitalized issuers by establishing HMBSrnissuer criteria that supports the long-term viability of the HMBS program.

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