Solvency issues re-emerged for the Federal Housing Administration (FHA) in a hearing convened Tuesday by the Senate Banking Committee, with HUD SecretaryShaun Donovan calling for lower loan-to-value thresholds and more servicer competition to expand refinance opportunities.

The hearing follows a bill by Sens. Barbara Boxer (D-California) and Robert Menendez (D-New Jersey) to roll back refinancing barriers for homeowners with GSE-held mortgages and featured the legislation prominently as lawmakers discussed  solutions to the housing crisis.

Donovan  praised the bill and identified three barriers to refinance opportunities for a  broader swath of homeowners, including lower fees, streamlined underwriting
practices, and manual appraisals for borrowers even in communities with few  recent home sales.

The  hearing quickly turned to servicer competition, which the HUD official  said is lacking in part because of strict underwriting guidelines under Fannie Mae and Freddie
Mac, inflating home prices and keeping refinance opportunities out  of reach for many homeowners.

“Servicers who don’t service  that loan are being discouraged from competing to refinance those loans,” he  told lawmakers, citing a “number of changes” that legislators and regulators  could make to remove barriers to homeowners.

He  faulted existing loan representations and warranties for discouraging servicers  from allowing borrowers to refinance at historically low interest rates.

“Frankly,  we think it doesn’t make a lot of common sense that a homeowner who actually  has more equity in their home is a lower-risk borrower… [than] homeowners who
may be underwater on their homes,” he said. “It’s a question of fairness to  make sure refinancing is available across the board.”

Sen. Richard Shelby (R-Alabama),  a frequent critic of the FHA’s failure to stay above its 2 percent capital  ratio buffer, reiterated concerns about the overcommitted housing agency in his  opening remarks and later in questions during the hearing.

“Do  you share my overall concern about the solvency of FHA?” he asked Donovan.

The HUD official  answered by highlighting recent “substantial premium increases,” as well as a  new rule on lender indemnification that he billed as a measure to protect the
FHA’s cash-strapped Mutual Mortgage Insurance Fund.

“I  do think we’re taking series of a number of broad steps to protect the fund,”  he said.

The FHA remains a political hotspot for the housing industry, with a recent paper by Joseph  Gyourko, a professor at the University of Pennsylvania, claiming last fall that
it would need anywhere from $50 billion to $100 billion in Treasury draws, if trends persist.

http://www.dsnews.com/articles/hud-secretary-wants-to-break-through-refinancing-barriers-2012-05-08

J. Scott Harris
J. Scott Harris & Associates – Mortgage Talent Agency
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