Representatives of both the Mortgage Bankers Association (MBA) and the National Association of Home Builders (NAHB) testified before the House Committee on Financial Services' Subcommittee on Insurance, Housing and Community Opportunity Thursday. The committee heard from stakeholders on the oversight of the Federal Housing Administration's Multifamily Insurance Programs.
Rodrigo Lopez, President and CEO of AmeriSphere Multifamily Finance in Omaha, Nebraska spoke on behalf of MBA. Lopez told the committee members that the recent housing crisis had spotlighted rental housing and the critical importance of FHA's countercyclical role. One in three American households lives in rental housing today, he said, and most Americans will rent at some point in their lives.
During the recession, as other rental market participants pulled back, FHA significantly increased its presence. Private capital is coming back, he said, but FHA remains critical in many markets and for many types of properties, particularly older affordable ones that other investors are less willing to finance.
Even while FHA's multifamily programs have been providing critical liquidity to the market, they continue to have low delinquency rates and show positive cash flow. Lopez referenced a 2011 MBA study that found that FHA multifamily and healthcare loans originated between 1992 and 2010 have generated $927 million in positive net cash flows. New tighter underwriting standards should further improve loan performance going forward, he said.
MBA commissioned its study because of the lack of good data on multifamily programs from the Department of Housing and Urban Development (HUD). What data is available, Lopez said, is difficult to separate out from information on single family loans. "Congress should require HUD to separate the multifamily loans from the single family loans in the GI/SRI fund in order to provide policymakers with a better understanding of the financial performance of the multifamily programs."
In order for FHA continue to sustain the housing market's long-term vigor it needs adequate resources to operate effectively. Lopez pointed out that over the last four years HUD's multifamily staff level has dropped significantly while loan volume has increased three-fold. Technology funding has also suffered and multifamily programs are still unable to submit applications electronically.
Lopez credited HUD efforts to improve its processes. FHA has initiated a pilot program streaming applications for properties with low income housing tax credits. MBA would like to see a nationwide expansion of the pilot as soon as possible.
The proposed increase of mortgage insurance premiums (MIPs) for multifamily programs seems to run counter to the strong performance of these programs and recent tightening of underwriting standards. MBA believes any MIP increase ought to be supported by a careful actuarial analysis and any insurance premiums should be used only to manage risk associated with the programs. Currently any excess income is returned to Treasury, not used to improve the programs or for a reserve fund.
Bob Nielsen, the immediate past chairman of NAHB gave similar testimony regarding increases in MIPS. The need to raise fees to reduce defaults has not been demonstration and HUD has failed to provide an analysis as to how the new fees would affect borrowers, lenders, or renters, he said. The proposed increases will not provide a buffer against future FHA losses because there is no segregated fund and excess income is simply returned to the U.S. Treasury each year. Increases will only add to property owners' costs, thereby affecting rents and discouraging the production of rental housing."
The effect would be felt
disproportionately by market rate properties in the secondary markets where
credit is limited, he added, because private capital is focused on the
strongest markets and the best capitalized large developers.
Turning to other topics, Nielson said NAHB opposes efforts to establish minimum capital ratios for the General Insurance and Special Risk Insurance (GI/SRI) Funds before an in-depth analysis is done but supports efforts to fully fund renewals of Section 8 Project Based Rental Assistance contracts. The association also backs HUD's efforts to expand financing for small multifamily rental properties and to provide a secondary market outlet for such loans.
He said that NAHB estimates that the aging "echo boom" generation will result in demand for between 300,000 and 400,000 multifamily units per year over the next decade. While economic recovery will determine the timing of this demand it will not be postponed indefinitely and 2011's 178,000 multifamily housing starts were only half what was needed to keep pace with growing demand.
"Production of multifamily housing will undoubtedly increase above the current low levels," said Nielsen. "It is important that the financing mechanisms to support that production are available and that Congress ensures that the FHA multifamily mortgage insurance programs continue to meet the needs of low- and moderate-income renters."
Lopez and Nielsen were among nine witnesses appearing before the committee. Among others were Marie Head, Deputy Assistant Secretary for FHA and representatives of the National Housing Trust, National Low Income Housing Coalition, National Council of State Housing Agencies and the National Multi Housing Council