Loan Modification

Industry Backs FHA Reform, Minus the Reform

By Implode-Explode Heavy Industries

National Mortgage News has a curious article covering the FHA reform bill, HR 5072, which is expected to be voted on in the House Thursday. The article is curious in that it portrays the industry (as represented by the NAHB, the MBA, and the NAR) as being in support of the bill. But this support is conditional only as long as bill is devoid of all the key numerical limits and boundaries on FHA's market influence and solvency:

• Industry opposes a 5% down payment requirement and exclusion of closing costs from the amount.
• Industry opposes lowering the FHA loan limit from an astronomical $720,000 to a merely-slightly-insane and market-inflating $500,000 (until the housing crash, the limit was under $400,000, which one might be forgiven for thinking is more than enough to get "needy people" into adequate housing.)
• The industry opposes a 10% market-share limit for FHA (without which FHA currently dominates the home loan market, making a mockery out of the US's aim to maintain "free markets".)

Some reform. The theme is: "you can talk about tighter policy, and retain some discretion to push back loans and such, but no hard limits." After all, those can't be as easily gamed by regulatory capture.

Here is an excerpt:

Industry groups oppose an amendment by Rep. Scott Garrett, R-N.J., that would increase the FHA 3.5% minimum downpayment to 5% and prohibit closing costs from being rolled into the loan amount. The Garrett amendment is expected to be voted down. An amendment by Rep. Melissa Bean, D-Ill., that requires FHA to report annually on its downpayment policy discussions is expected to pass. FHA currently has a market share of 30% and Rep. Tom Prices, R-Ga., is offering an amendment to cap it at 10%. Rep. Michael Turner, R-Ohio, wants to reduce the agency's maximum loan limit to $500,000 from $720,000. Industry groups contend the amendment would be disruptive and hurt the housing recovery. Meanwhile, real estate, apartment and low-income housing groups are supporting an amendment by Reps. Anthony Weiner, D. N.Y, and Gary Miller, R-Calif., that increases the FHA multifamily loan limit for elevator properties in high-cost areas. The House is expected to vote on final passage of H.R. 5072 Thursday.

Gary Miller has previously supported downpayment money laundering, in the form of HR 600, which allowed builders (and other sell-side entities), to effectively dodge FHA's downpayment requirement entirely. So we know which way he swings.

Full post as published by Mortgage Lender Implode-o-Meter on June 09, 2010 (boomark / email).