FHA is key to housing market, economic recovery

Dec. 3, 2009 – The Federal Housing Administration mortgage insurance program is a critical part of the American housing fabric and has never been more important than it is in today’s market, said Vicki Cox Golder, president of the National Association of Realtors, in front of a Congressional panel this week.

Testifying before the House Committee on Financial Services, Golder said that the FHA program is fiscally sound with responsible underwriting, and needs enhancements not radical reform. She urged Congress and the administration to tread lightly before making changes to a program that has a profound impact on economic recovery and serves the nation’s families.

“With the collapse of the private mortgage market, the importance of the FHA mortgage insurance program has never been more apparent. Thus far in 2009, nearly 80 percent of all FHA insured purchasers are first-time homebuyers. And if you take a closer look at the numbers, you’ll see that program is doing exactly what it was designed to do—make more affordable mortgage financing available to homeowners,” said Golder, owner of Vicki L. Cox & Associates in Tucson, Ariz.

She pointed out that this year almost 50 percent of non-white Hispanic borrowers used FHA insurance or the Veterans Administration’s loan guaranty for home-purchase loans and 21 percent used the FHA or VA program to refinance a home loan. Last year, more than 60 percent of home-purchase loans and about 45 percent of refinance loans to black homebuyers were insured or guaranteed by either FHA or VA.

“As the leading advocate for homeownership and housing issues, NAR knows that without FHA mortgage insurance, our housing market could never start to recover,” Golder said.

FHA’s decline in reserves is in part a reflection of a projected change in home price values, and is not tied to excessive increases in defaults or unsound underwriting practices, she said. In citing the recent FHA audit, Golder said, “If FHA makes no changes to the way it does business today, the reserves will actually exceed 2 percent in the next several years. FHA has sufficient reserves.”

FHA cash reserves and capital reserves give the agency combined assets of $30.4 billion—enough to pay all claims over a 30-year period. Most banks are required to hold reserves sufficient to pay only one year of claims. “Realtors strongly believe that FHA is taking the necessary steps to assure its financial solvency,” Golder said.

“We look forward to working with the Department of Housing and Urban Development. We have confidence that FHA Commissioner Dave Stevens will do what’s needed to ensure the financial health and stability of the FHA fund. We encourage FHA to take steps that will have the least impact on FHA borrowers who are such an important part of our housing and economic recovery,” said Golder.

NAR strongly opposes H.R. 3706, the “FHA Taxpayer Protection Act of 2009,” which would increase FHA’s downpayment requirement. The bill would not add anything to FHA reserves but would put homeownership out of reach for many creditworthy borrowers.

“Realtors believe the best way to ensure FHA’s success is to strengthen it,” she said.

Golder also thanked Chairman Barney Frank (D-Mass.) and the committee for passing legislation to extend the higher loan limits through 2010, but urged the committee to make the higher limits permanent. “The higher limits are not just for a few states with high median prices. There are currently 245 counties in 28 states that have high cost limits—this is a national issue,” she said.

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