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FHA Hearings Address Broker Net Worth

MBA, NAMB testify at House hearing

June 18, 2009


In testimony before Congress today, mortgage bankers warned that the Federal Housing Administration and the Government National Mortgage Association need more resources to keep up with rapidly increasing government originations. The group also called on lawmakers to increase minimum FHA net worth requirements -- though mortgage brokers argue that an increase won't make a difference.

At a House Financial Services Subcommittee on Oversight and Investigations hearing today, Mortgage Bankers Association Chairman David G. Kittle testified that FHA market share has risen from 3 percent to 30 percent "virtually overnight," according to a prepared transcript of his statement. But the agency is operating with outdated technology and a thin staff.

"The result is a diminished ability to detect and root out fraud, remove bad actors from the program, approve new lenders, and process mortgages," Kittle stated.

He warned Congress that the re-emergence of FHA as a dominant mortgage program could be curtailed if the agency doesn't get the resources it needs.

The trade group executive called on legislators to appropriate the $25 million for annual staffing and technology upgrades already authorized last year under the Housing and Economic Recovery Act. He also recommended that FHA be placed on a more level playing field with other federal regulators so that it can attract better talent.

In addition, called for an increase in staff at Ginnie Mae to from 65 to at least 90 so that it can keep pace with the spike in government lending.

The Washington, D.C.-based association's recommendation was endorsed by National Association of Mortgage Brokers President Marc S. Savitt, who testified at the same hearing that funding for the Department of Housing and Urban Development and FHA must increase in order to increase efficiency, improve productivity and boost fraud detection.

MBA recommended that the minimum corporate net worth for mortgage bankers that underwrite FHA loans be raised from $250,000 currently to the greater of $500,000 or 1 percent of FHA loan volume -- up to a maximum of $1.5 million.

For mortgage brokers, Kittle said the minimum net worth should be boosted to the greater of $150,000 or 0.5 percent of FHA loan volume up to a maximum of $500,000.

"MBA believes FHA-approved lenders and brokers should be held to the highest levels of accountability, knowledge and professionalism," Kittle testified.

But asking for increased net worth requirements for mortgage brokers won't help consumers -- though it will help the competitive posturing of MBA's members, according to the primary trade group for U.S. mortgage brokers.

In an interview with today, NAMB's Savitt said MBA's recommendation is motivated by competition. The trade group says it represents the interests of more than 70,000 U.S. mortgage brokers.

"It really has nothing to do with consumer protection," Savitt said. "This is about market share."

He explained that many firms which had a very high net worth one day were out of business the next day.

"Net worth is pretty much a snapshot of what your were yesterday," he said.

Net worth requirements for mortgage brokers -- who are just small business owners -- are ineffective and should be abandoned entirely, Savitt said. Instead, a recovery fund would be more effective because harmed borrowers can be made whole. He noted most states have moved away from net worth requirements for licensing and instead utilize surety bonds -- which has proven to be more effective.

"Money in a fund or a bond is the only way to protect the consumer," he added.

MBA's Kittle testified that his group supports maintaining a bond sufficient to provide reasonable protection to consumers and taxpayers.

MBA also said it supports permanently raising the FHA limit to $625,500, with a maximum of $729,750 in high-cost areas.

Sam Garcia worked in mortgage lending for twenty years prior to becoming publisher of in 2000.

e-mail: [email protected]

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