ORLANDO, FLA. -- As the mortgage market becomes increasingly competitive with the growth of affordability products, the government housing programs - which have specific lending restrictions - are falling behind not just in terms of market share but also in terms of product innovation, particularly among subprime borrowers. Responding to these issues, the Federal Housing Authority is implementing drastic changes to its program, according to Brian Montgomery, Federal Housing Commissioner at the U.S. Department of Housing & Urban Development in remarks made at the Mortgage Bankers Association's 92nd annual Convention and Expo 2005 held here last week.
"The FHA is at a crossroads," Montgomery said at the session called What's Going on with the Government Housing Programs, adding that without changes, the market would "watch the FHA fade away."
"The FHA has fallen behind, unable to keep pace with the dynamic mortgage market. We have a whole new management team that will restore the FHA's intended position in the market place," noted Montgomery. He added that the primary goal is to prevent FHA-eligible borrowers from making costly financial decisions by helping them not only obtain a safe and affordable mortgage, but also make sure that they stay in their homes.
Montgomery said that his course of action is twofold: changing the way the FHA does business as well as changing the products being offered by the agency.
One change is the overhauling of the FHA's loan appraisal system. Going forward, FHA lenders will be using the same appraisal form as Fannie Mae currently does, making the system more standardized. The government agency will also implement the new lender insurance program that allows more qualified borrowers to obtain FHA's mortgage insurance without the need for case binders for pre-insurance review. Participating lenders would need to submit between 7% and 10% of their production for FHA review, instead of the current 100%. These lenders will also have the option of submitting documents for loans selected for FHA review electronically rather than through the mail, thus further reducing the lender's back-office expenses.
The FHA would also allow authorized agents to provide clients with alternative mortgage products, such as reverse mortgages. In terms of product innovation, the FHA is expected to roll out and offer new products such as the cash-out refinancing option and 95% LTV loans but with an eye towards the homeowner's ability to make monthly payments. Another loan that the agency would like to offer is one that would include up to $35,000 intended solely for home improvements. The FHA also would like to set up a nationwide call center and an internet-based approval system.
Montgomery, who has only been in his current position for three months, said that the primary goal is to make the FHA loan less "unique, specialized and onerous" by reducing documentation, signature and certification requirements. "We are going to look at what needs to be updated and streamlined," he said.
At the same panel, Ginnie Mae Executive Vice President Michael Frenz expressed his excitement to be working with Montgomery. Frenz also noted Ginnie Mae's recent efforts to improve its disclosures and reiterated the agency's commitment to affordable housing goals by making the process of homeownership cheaper and easier for borrowers. "We don't want people to pay more in subprime," Frenz stated.
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