FHA Plays Vital Mortgage Finance Role, but Private Sector Must Return

The Federal Housing Administration plays a key role in today’s housing market, but changes are necessary to support recovery in the real estate market and general economy. That was the focus of today’s “Restoring the Balance of Public and Private Capital in Mortgage Finance” session, part of a three-day summit during the Realtors® Midyear Legislative Meetings & Trade Expo here this week.

“Realtors® are working to reshape real estate in America, and FHA’s role and prominence have shifted significantly over the past few years,” said National Association of Realtors® President Vicki Cox Golder, owner of Vicki L. Cox & Associates in Tucson, Ariz. “Many first-time home buyers rely on FHA loans to purchase a home, and because of its vital role in helping families achieve the dream of homeownership, FHA must be strengthened and supported. At the same time, private financing must also return to support a full recovery.”

In 2009, more than 50 percent of first-time buyers used FHA to finance their home purchase, and nearly 80 percent of FHA’s purchase loans were to first-time home buyers. FHA also serves those who need to refinance out of risky adjustable-rate mortgages or subprime loans with high interest rates. In 2009, approximately 835,000 borrowers refinanced into lower interest rate FHA-insured loans, saving them an estimated $1.3 billion.

Vicki Bott, deputy assistant secretary for Single Family Housing, U.S. Department of Housing and Urban Development, acknowledged FHA’s current significance in mortgage financing. “FHA has become a vibrant part of the market, but our goal is not to build market share, nor is it to retract from the market. We need to support the housing market, but we also support improving market liquidity and bringing private involvement back to the market,” she said.

Bott joined panelists Steve Adamo, president and CEO, Weichert Financial Services; Scott Griffith, ERA Griffith Realty; and David Katkov, president and EVP, PMI Mortgage Insurance Co. Realtors® voiced their concerns with current lending challenges, including limited liquidity in the resort and second-home market and appraisal concerns related to the Home Valuation Code of Conduct. Panelists acknowledged there was still progress to be made, but that FHA had played a valuable role in averting larger problems.

“Thank God FHA was there,” said Katkov. “FHA stepped in, as they should, but as the market heals, the balance should be restored.” Katkov described an ideal mortgage insurance balance as 50-60 percent private sector, 35 percent FHA, with the remaining portion covered by loans guaranteed by the Veterans Administration.

“As the leading advocate for homeownership, NAR strongly supports FHA’s single- and multifamily mortgage insurance programs,” said Golder. “Yesterday, Realtors® visited Capitol Hill to tell Congress to strengthen FHA while still allowing for access to safe, affordable financing by responsible borrowers, and to make the higher loan limits permanent to prevent dramatic decreases in the availability of affordable, safe financing nationwide.”

Decreasing the current loan limits would reduce the availability of mortgages in 612 counties in 40 states, plus the District of Columbia. The resulting average limit reduction of more than $50,000 would have a dramatic impact on liquidity and could halt the housing recovery, according to NAR.

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