How does a key mortgage player size up the current state of the U.S. housing market?
“I think we’re near bottom,” Federal Housing Administration Commissioner David Stevens told a congressional hearing this morning. “I think we’re at minimum, near the bottom.”
The FHA, which emerged as a major player in the home mortgage market since the financial crisis, historically sought to help first-time home buyers with impaired credit or little money for down payments. The government agency insures the mortgages and promises to repay the lender if the borrower defaults.
FHA has kicked 1,500 lenders out of its loan insurance program during the past year and imposed $4.27 million in civil fines against lenders who violated agency underwriting rules, Stevens told the House Financial Services Committee. The agency is also developing new technology to detect fraud among remaining lenders at the loan level because “fraud typically involves some form of collusion” among lending officials, he said. In addition to the agency’s stepped-up enforcement, FHA is also requiring lenders to hold more capital, pay higher insurance premiums, and setting a floor on allowable credit scores for borrowers.
The Center for Public Integrity, in a project with the Washington Post, reported earlier this month that the FHA has failed to root out several lending executives with criminal records whose firms continue to do business with the agency in violation of federal law. The agency’s aggressive campaign has also been hamstrung because, even when the FHA can ban mortgage companies for wrongdoing or an excessive default rate, the agency lacks the power to stop their executives from landing jobs at other lenders.
At the hearing, FHA Commissioner David StevensStevens renewed his plea for Congress to pass legislation that would expand FHA’s power to recoup losses from loans it insures. Currently, the agency has that power only for loans that originate through its lender-insured process for the best-performing institutions, and they comprise less than one-third of all FHA-approved lenders.
So far this year, the FHA has insured 6 million home loans, some with down payments as low as 3.5 percent. About 91 percent of the loans are current, Stevens told lawmakers.
The FHA, along with Fannie Mae and Freddie Mac, the two entities seized by the U.S. government in 2008, are now financing about 90 percent of U.S. home mortgages.