The Mortgage Bankers Association (MBA) has issued a blueprint for keeping Ginnie Mae and FHA "available and relevant into the future." Citing the dangerously low levels of FHA's capital reserves as revealed last fall and the increased reliance of the housing finance system on FHA guarantees, MBA convened a Council on the Future of FHA and Ginnie Mae in November 2009 "to begin an extensive retrospective on the housing boom and subsequent bust, including discussing recommendations on how to sustain FHA and Ginnie Mae."
MBA's recommendations for each agency are divided into three categories: Capacity and Resources, Program Eligibility; and Operations and Delivery of Services. We will summarize them in the same format.
FHA Capacity and Resources
Even before the recent explosion in loan volume, FHA has operated at insufficient staffing levels. The agency should be given the necessary resources to quickly recruit and employ additional staff with relevant mortgage market expertise. FHA's hiring authority should be separated from that of the Department of Housing and Urban Development in order to speed up the hiring process and separate it from "on-going budgetary continuing resolutions." Both FHA and Ginnie Mae should have the ability to recruit and pay staff as a higher federal pay scale on a par with other agencies such as FDIC and the Securities and Exchange Commission.
FHA should undertake appropriate and up-to-date training of staff in real estate finance and residential lending including specialized training for its multi-family and healthcare programs.
FHA's information technology was developed and exists in a fragmentary manner making changes expensive and time consuming. Each program office develops applications independently, causing redundancy and lack of integration. MBA recommends that FHA receive Working Capital Funds through direct appropriation and be allowed to develop and implement needed IT systems independent of HUD. FHA should also develop and apply a fraud monitoring and reporting tool as early in the origination process as possible.
The Association urges the agency to completely reexamine FHA TOTAL Scorecard in order to improve its reliability and functionality especially the thoroughness of its borrower risk assessment capabilities. Once that assessment is conducted and subsequent improvements are in place, FHA should provide lenders who rely on TOTAL with rep and warrant relief and an exemption from Neighborhood Watch.
FHA should consider a separate risk management practice that would take place after the endorsement and involve expert third-party providers to help validate the loan against underwriting guidelines as well as uncover any instances of material misrepresentation.
Finally, FHA should meet with lenders to determine where the LEAN Program, developed in 2008 to manage and improve key customer-interface processes, has not met expectations and determine how to correct the program.
The temporary loan limits established for FHA by the Economic Stimulus Act of 2008 have caused some policymakers and industry leaders to consider whether FHA is being true to its original mission to help meet the housing needs of middle-income families. Homebuyers who are able to qualify for loans at the upper loan limit in designated high-cost areas need an income of over $180,000 at current interest rates. Where one lives generally shapes one's opinion about whether a borrower earning at that level meets the definition of FHA's mission population. To date, use of FHA loans at those jumbo loan levels has been fairly small.
As private lenders return to the market, the need to maintain the high limits should be revisited. MBA supports a decrease in the limit after the stabilization of the housing market. Limits should be determined based a discussion of whether there should be a single national standard or county-by-county based on one of several formulae. A mechanism should be developed to that limits bear a reasonable relation to median home prices and take into consideration the conforming loan limits of the Enterprises.
MBA recommends that FHA continue to meet with industry groups, housing advocates and others to help develop solutions to keep the Home Equity Conversion Mortgage (HECM) viable, specifically addressing structural impediments such as upfront fees.
Operation and Delivery of Services
Protection the insurance fund is the primary responsibility of the FHA Commissioner and he/she should have the ability to adjust premiums and underwriting guidelines as economic situations warrant. However, the HUD General Counsel has recently said that FHA can increase the minimum down payment requirement, currently at 3.5 percent, without legislation. MBA recommends that any such change undergo a formal administrative process.
Despite the huge increase in volume of loans, currently the only mechanism FHA has to suspend problem lenders is the Mortgagee Review Board. Using this vehicle can take several weeks or even months. MBA believes the Commissioner should have the authority to temporarily suspend a lender pending a more expansive review and visit. The lender, unless criminal activity is suspected, should be afforded due process and allowed the opportunity to address FHA concerns before suspensions are made public.
FHA's multi-family programs have historically provided many benefits to distressed neighborhoods at little cost to the program however, in the current environment it is fair to assume some increase in defaults. FHA should monitor the increased use of its financing for market rate multifamily and healthcare programs where vacancies have risen over the past three years. However, MBA encourages FHA to act judiciously, balancing the need for rental housing with risk management changes, particularly for working families. FHA's plan to apply tighter underwriting standards across all markets uniformly will slow the supply of credit even where market fundamentals are improving.
Finally, MBA recommends that FHA examine the existing Homeownership Center (single family) and Hub/Field Office (multi-family) structure to improve efficiency and consistency.
RECOMMENDATIONS FOR GINNIE MAE
Capacity and Resources
As with FHA, MBA feels that Ginnie Mae is operating at staff levels insufficient to manage what has been a 400 percent increase in securities issued since 2007 and that additional staffing resources be a top priority.
Ginnie Mae was exempted from the Credit Reform Act of 1990, but the Office of Management and Budget (OMB) has frequently suggested it be placed under that umbrella. MBA opposes such a move Ginnie Mae would then be required to have all of its funding appropriated by Congress instead of paying its expenses out of receipts. MBA also recommends it be allowed to develop a reserve against potential credit or counterparty losses.
Operations and Delivery of Services
Recently Ginnie Mae has attempted to better align its policies with the independent mortgage banker business model by, for example, allowing single loan pooling and permitting lenders to issue pools at any time of the month both of which improve the flow of liquidity. Participation in the Ginnie Mae Program can require significant liquidity and, at the same time, obtaining funding for advances for many non-depository institutions can be difficult. MBA requests that Ginnie Mae explore program changes to help address the liquidity issues while still protecting the program from unnecessary risk
The operation of the HECM program has been imperiled by the closing of Fannie Mae's purchase window for HECM mortgages. Ginnie Mae has issued HMBS backed by HECM loans since 2007 but these got off to a slow start. The lack of other options recently led to an increase in use of HMBS by larger issuers but there are only nine approved Ginnie Mae HMBS issuers and only five are currently active. MBA recommends that Ginnie Mae make an effort to attract more qualified and well-capitalized issuers by establishing HMBS issuer criteria that supports the long-term viability of the HMBS program.