Since the private mortgage marketÂ collapsed, the Federal Housing Administration (FHA)Â has played a critical role by helping make mortgage insurance available to millions of qualified home buyers. That is exactly the way Congress designed the mortgage insurance fund to operate when it was established 80 years ago, National Association of REALTORSÂ® President Gary Thomas said in testimony today.
Thomas testified before the Senate Banking Committee that without the FHA, the housingÂ downturn and economic recession would have beenÂ far worse for the nation.
â€œFHA helped fill the void over the past five years after private lending fled the market by providing safe, affordable access to mortgage credit to millions of Americans who wanted to purchase a home,â€ Thomas said. â€œHad FHA not stepped in to fill the market gap, many families would have been unable to purchase homes, current home owners would have experiencedÂ far greater drops in equity and their homeâ€™s value, and our nationâ€™s economy would be much further from a recovery.â€
In his testimony, Thomas said FHA has always safely provided access to mortgage financing; it has never offered risky mortgage products, used predatory lending practices or engaged in exotic underwriting. However, like other holders of mortgage risk, FHA incurred great financial losses as a result of overall market conditions that led to increased foreclosures.
Thomas said that NAR is confident that FHA has already taken many of the necessary steps to help stabilize the fund as well as numerous administrative changes to mitigate risk. Those changes include five increases to mortgage insurance premiums since 2009, hiring a credit risk officer, implementing credit score floors, requiring higher down payments for borrowers with lower credit scores, and adopting a series of measures to increase lender responsibility and enforcement, he said.
â€œFHA currently has one of the strongest books on record and the quality of borrowers has skyrocketed; continued market improvements and rising home prices will also help improve the fundâ€™s future financial condition,â€ Thomas testified.
Thomas said NAR welcomes a time when FHAâ€™s market share is reduced to its more traditional levels of 10 to 15 percent of the market, and the private lending market is once again robust, but the country is not there yet. Uncertainty about pending financial regulations and the future of the secondary mortgage market are keeping private lenders from returning to mortgage markets.
â€œOnce the rules for mortgage finance are resolved and housing prices stabilize nationwide we anticipate that private investors will return to the market and FHAâ€™s market share will return to more traditional levels,â€ he said.
Thomas cautioned about making arbitrary changes to FHA, such as further increasing costs to consumers or limiting the use of the program to certain types of buyers, only for the sake of luring back private markets. While NAR supports changes that are vital to the solvency and strength of the FHA fund, actions to deliberately lower FHAâ€™s market share could disrupt the availability and affordability of mortgage credit and undermine the fragile real estate recovery.
â€œFHA continues to play a significant role in the housing market and recovery. We applaud them for their leadership and strength during the housing crisis, and for continuing to serve the needs of hardworking American families who wish to purchase a home,â€ Thomas said.