WASHINGTON – In the current credit squeeze, if you have less than a 20 percent down payment, there's pretty much only one major source of mortgage financing available: FHA, the Depression-era home loan insurance agency that still offers 3 percent down, 30-year fixed-rate mortgages with consumer-friendly credit standards, even on jumbo loans in high-cost areas of California and the East Coast.
But there is a potentially troublesome problem looming for FHA: New loan volume is exploding – tripling in the past 12 months alone – and Congress just handed the agency the responsibility for virtually all the government's efforts to keep economically distressed homeowners out of foreclosure by refinancing their current, unaffordable loans.
FHA says it needs to hire more staff and upgrade its technology to be able to handle the crush of new business, but complains that Congress hasn't appropriated the necessary funds – $65 million – to do the job fast enough.
Can a government agency whose market share dropped below 3 percent during the heydays of the subprime boom now properly handle explosive volume rocketing it to a market share 10 times its low point?
Mortgage industry, home building and real estate experts worry about the possible consequences of shifting too heavy a share of the mortgage market too quickly to an agency that may be inadequately staffed or funded by Congress.
Howard Glaser, who served as acting general counsel for HUD, the parent department for FHA, during the Clinton administration, worries that loading on too much business without properly funding staff increases and technology upgrades raises the odds of future breakdowns.
“FHA is assuming the risks of a mortgage market abandoned by private investors – without the risk management tools,” he said. “My fear is that next year at this time, we will be debating an FHA bailout.”
Steve O'Connor, senior vice president of the Mortgage Bankers Association, agreed there's danger lurking in the massive increases in loan business going to FHA.
“You just can't expect to fit that amount down the same size pipe – you've got to expand the size of the pipe” by funding additional staff and upgraded technology, he said. “It's a very serious concern.”
FHA – for years the forgotten, federally controlled stepchild of an industry dominated by Fannie Mae, Freddie Mac and the Wall Street mortgage bond machines – is now insuring more than 140,000 new loans a month, according to agency statistics.
It has $400 billion in outstanding loan balances in its insurance portfolio, and runs its home mortgage business with 937 employees in offices spread around the country. The agency wants authorization to add 160 employees immediately.
Though historically a resource for first-time buyers, minorities and consumers with imperfect credit, FHA increasingly is the go-to place for people who have above-average credit backgrounds but lack – or choose not to use – large amounts of down-payment cash.
With mortgage limits extending into the jumbo category, the agency is attracting large numbers of customers from high-cost areas of the country, especially California and the Middle Atlantic States.
© Washington Post Writers Group
