Clinton, Administration Want FHA Changes

Clinton said that while FHA’s role as an industry leader in the single-family marketplace has declined because of the difficulty lenders face working with the agency, the agency still has a role to play — especially in keeping borrowers away from subprime and other high-cost mortgages. She explained that on a $226,000 mortgage, the savings achieved with an FHA loan could be up to $716 a month versus a Fannie Mae loan and $1005 versus a subprime loan.

“We need FHA to provide the vital alternative,” she said.

Clinton said reforming FHA is one of the best ways to improve lower income and minority home ownership because of the agency’s leadership role in lending to the communities. She said in 1992, about one in five FHA-insured loans went to minority homebuyers, a number that has grown in recent years to one in three. “But there is more work to be done,” she said, pointing out that only 48 percent of African-Americans and 50 percent of Latinos own their homes compared to 76 percent of Caucasian households.

The senator noted many FHA loans are processed on “outdated” hardware banks using “old” databases. Because some of FHA’s systems are antiquated, they cannot connect with or keep up with the more sophisticated technology used by the banks. FHA should also have the personnel it needs to meet market demands, she said.

Republican appointee Jackson also said it is time for the Depression-era created agency to adapt to today’s marketplace.

“A modern-era FHA will offer many hardworking Americans a variety of homeownership options that are priced fairly and within their means,” the housing secretary explained.

The former first lady said that one approach to reform is legislation already introduced into the House of Representatives that includes many of FHA’s own recommendations, such as making the system simpler and more flexible.

Jackson said Rep. Robert Ney’s (R-OH) legislation, Expanding America’s Homeownership Act, is critical to bringing FHA into the modern day. That bill calls for modernizing and updating the National Housing Act and enabling FHA to use risk-based pricing.

Jackson said the bill enjoys bipartisan support, including co-sponsorship by outspoken liberal California Democrat Maxine Waters.

Clinton said the House bill has a lot of “good things” — simplifying downpayments, extending mortgage limits — that are needed. She also said she wants FHA to have the tools and flexibility required to serve Americans in today’s marketplace such as with improvements in technology.

As part of her belief that FHA needs reform, the senator introduced this month the Federal Housing Fairness Act. The bill is aimed at raising FHA loan limits — a critical issue for the people in her district and many other districts who cannot afford a house because of the run-up in housing prices. She said the loan limits on an FHA loan on an effective basis is $367,000. She pointed out that the average home on Long Island is now selling for $400,000. Clinton is hopeful that the bill can be made into law this year because housing is one of the “bright spots” in the economy. “I think we should do everything possible to keep that going while we deal with some of our bigger issues,” she said.

Jackson said that while FHA in the past has been risk-adverse, he now wants the agency to employ risk-based premiums. Less creditworthy applicants will pay more than more creditworthy applicants but he said this is a better alternative than using subprime lenders The mortgage industry has changed, it is time for FHA to change with the industry, he said.

Lisa D. Burden is a legal analyst for MortgageDaily.com and holds a law degree from the University of Maryland. She is currently a freelance journalist who previously wrote for Institutional Investor publications and the Baltimore Daily Record.

e-mail Lisa at: burdenlisa@yahoo.com