By 2014 NAR President Steve Brown
Just as the winter snows melt, and spring begins to bloom, there are also signs of renewal for the Federal Housing Administration (FHA).
The White House released its fiscal 2015 budget proposal last week, and it indicates that the FHA should not need additional taxpayer funding in the coming year. This excellent news couldn’t have come at a better time. This announcement puts the FHA on the right path not only towards achieving compliance, but being positioned to cover any future losses without seeking additional funds from the federal government.
When private lenders fled the market after the 2008 financial crash, the FHA was left carrying an oversized burden. I saw this up close in my own company in Dayton, Ohio. During the depths of the Great Recession, FHA-backed loans were more than 60 percent of my affiliated mortgage company’s business. Even today, FHA-backed loans are nearly 30 percent of my book. There is no question that my business would not have survived without the FHA. In fact, the housing recovery we are now experiencing would not have happened if the FHA had not been there when times were tough.
Understandably, FHA paid a price for this commitment. It suffered financial losses and needed additional funding to cover an accounting shortfall in its emergency reserve account. For the first time in the agency’s 80-year history, the FHA drew $1.7 billion from the Treasury Department last year.
To ensure the agency does not need additional funds, the FHA made significant changes. The White House budget announcement indicates these reforms are producing positive results.
NAR continues to be a strong supporter of the FHA. We are pleased that Congress allowed the FHA to put its house in order without enacting hasty reforms that would have stalled the real estate market’s fragile recovery.
Of course, we aren’t out of the woods, yet. This is why we support needed housing finance reforms, especially the Senate’s Johnson-Crapo “FHA Solvency Act of 2013.” This bill is a strong step forward in strengthening the FHA.
But, for now, everyone across the political spectrum should welcome the news that the FHA is on the path to financial solvency. It demonstrates that the FHA’s mission of providing low cost loans to qualified borrowers—particularly low- and middle-income buyers – does not have to come at the expense of America’s taxpayers.
By NAR 2013 President Gary Thomas
Although August is time for the annual Congressional recess, activity in our nation’s capital is not slowing down. We’re continuing to work hard on vital issues like tax reform, flood insurance and mortgage lending.
We are especially focused, right now, on the future of housing finance. NAR is urging lawmakers to move forward on comprehensive, bipartisan legislation that will restructure Fannie Mae and Freddie Mac. We believe it’s vital for the protection of the 30-year mortgage. In a speech last week, the President also expressed his support for the 30-year mortgage and stated his commitment to ensuring consumer access to safe, reliable mortgages.
While NAR supports the idea of reforms that protect taxpayers, we believe government plays a critical role in mortgage lending, especially when private lenders flee the marketplace, which leaves too many buyers unable to access mortgage credit.
We’ve long supported reform of the Federal Housing Administration, and I have testified twice before Congress on the issue. Our position is clear—it’s important to shore up the long-term solvency of FHA, but not at the expense of the consumers it was designed to serve.
In Congress three different bills on reforming the secondary mortgage market have been introduced.
The House Financial Services Committee passed a bill, called “the Path Act” that would increase down payments, putting homeownership out of reach for many of our customers. We oppose the PATH Act because it does not include an explicit federal guaranty—meaning no public backing. If it were to pass the 30-year mortgage may no longer be available to buyers.
A Senate bill, introduced by Senators Corker and Warner, does include the government guarantee, but we are concerned that when private capital chooses not to participate in the market the flow of credit could dry up. We will continue to express our concerns, and are working to help shape the bill.
The third bill, introduced by Senators Johnson and Crapo, focuses on ensuring the long-term viability of FHA. It would fulfill FHA’s mission of providing low cost loans to qualified borrowers—particularly to low- and middle-income buyers.
Last week, the President came out for a government guarantee, the Senate has acted, and now it’s time for the House to get on board. Members of Congress are in their districts this month, so we’re encouraging our members to visit their representatives. Let them know “Home Ownership Matters.” We expect a lot of activity when Congress returns. So stay tuned, and be ready to take action!
By NAR 2013 President Gary Thomas
REALTORS® are finally being heard, and it makes you want to jump and shout!
Today President Obama delivered the message loud and clear—Home Ownership Matters!
I’m pleased to say that our efforts to make our voices heard by the Administration have had a positive impact. The President agrees with the National Association of REALTORS® (NAR) on an overwhelming majority of the housing finance issues of the day.
In a speech at the Desert Vista High School in Phoenix, the President spoke to area REALTORS® and others about housing policy and his vision for reform of the housing finance system. In the speech, he stated his commitment to ensuring consumers retain access to the 30-year mortgage—traditionally the quickest route into the middle class—and cutting red tape so that families have access to safe, reliable mortgages.
Additionally, the President expressed support for reform of the Federal Housing Administration (FHA) and the Government Sponsored Enterprises (GSEs). He said the Administration plans to continue the phase-out of GSEs Fannie Mae and Freddie Mac, now in conservatorship. At the same time, he supports the creation of a common securitization platform to encourage investment in mortgage-backed securities. NAR agrees with the Administration’s view that any new system includes a government guarantee.
The President said he supports the historic affordability role of the FHA, which is critical to first-time homebuyers. While we support the goal of maintaining the FHA as an affordable option, NAR believes the FHA should preserve access for all qualified middle class families.
The Administration calls on Congress to approve refinance programs that provide more relief to troubled borrowers. NAR supports the government’s refinancing program, known as “HARP,” along with “bright line” standards that provide certainty to community banks selling loans on the secondary mortgage market.
While we have concerns about specific FHA reforms, protecting loan limits and keeping down payments low, we believe recent bipartisan legislation introduced in the Senate is a good place to start. President Obama made good use of the bully pulpit in stating his commitment to protecting the dream of homeownership for all Americans.
Over the past year, REALTORS® have sometimes felt like a voice in the wilderness. No longer.
I have some great news to share with everyone! Last night Congress voted to restore loan limits and the maximum cap for Federal Housing Administration loans. Their action reinstates the loan limit at 125 percent of area median price up to $729,750 for two years and extends the National Flood Insurance Program until December 16th, with no lapse.
This is good news! Higher loan limits will make mortgages more accessible for hard-working middle-class families throughout the country. In fact, nearly two-thirds of buyers who will be helped by the loan limits extension have incomes below $100,000. On flood insurance, the extension until December 16th ensures no lapse, but we still need to push for Congress to pass the five-year reauthorization. Contact your representative to reauthorize NFIP for five more years.
Opponents of higher loan limits mistakenly argue that only wealthy borrowers benefit from the maximum cost limits. But in 2010, the FHA was used by 56 percent of all first-time homebuyers, and 85 percent of borrowers obtaining homes at the higher loan limits had incomes below $150,000. In addition, 60 percent of all African-American and Hispanic homebuyers used FHA.
The truth is that it actually depends a lot on where in the country the borrower lives. Geography often dictates what the price of “affordable housing” is. Last month’s reset to 115 percent impacted 669 counties in 42 states and territories, with an average loan limit reduction of more than $68,000. We support giving middle-class borrowers the same access to affordable mortgage financing, no matter where they make their home.
For example, many people think of California as a high cost state, and there are many areas where it is. San Francisco will benefit because many middle class homes bump up against the $729,750 limit. What many people don’t know is there are many counties in California that are not considered high cost and will benefit. Take Fresno County, for example, prices will go from $281,750 to $311,250 to qualify. As you can see, this really benefits consumers no matter where they live.
For a great analysis, see the video below.
Statistics for last year show a decline in mortgages for higher priced homes, in spite of historically low interest rates. This suggests that sales in the higher-priced portion of the markets were stymied relative to the lower price ranges during the period leading up to the change in the conforming loan limits. This negatively impacted our businesses at the very worst time.
Yet, not long ago, the effort to reinstate the loan limits was dead in the water. Several members of Congress let us know it would never happen. But we didn’t give up. We showed Congress what REALTORS® are made of—strength and grit! We sent out a Call for Action on both these matters, and we had an impressive response from members. And you know what? Congress listened! That’s why these Calls for Action are so important, and I thank you for your overwhelming response.
Those of you who answered the call helped make a difference, and I urge you to keep up the good work by continuing to respond when asked. And be sure to answer the call for action to reauthorize NFIP, if you haven’t already. Again, thanks for your help!
This past week, I traveled to Washington, D.C., to testify on behalf of REALTORS® at two congressional hearings. Although the issues were quite different, the message was the same – the federal government must work with us to keep homeownership both affordable and accessible for America’s families.
When doctors take the Hippocratic Oath, they pledge to first “do no harm.” It’s important that we take the same approach to addressing issues in the market.
It’s no secret that the Federal Housing Administration has taken on some additional risk filling the gap left by the private market. But, that is the role it was designed to fill, and without it, our current recovery in the real estate markets would not be possible. While it’s important to manage those risks, we must be careful not to go overboard and disenfranchise those that FHA was created to help.
Just yesterday, I told members of the House Financial Services Subcommittee that we believe FHA has made necessary changes to manage current risks. More importantly, I told them that REALTORS® do not support legislation that would raise the downpayment or measures that would otherwise increase costs for potential buyers.
I encourage you to read my testimony and share your thoughts on the important role that FHA plays in your market.
Of course, simply NOT doing harm is just the first step. Like good doctors, we must also be able to diagnose problems and fix them – before they become major ailments.
That’s exactly what we are trying to do on the issues of affordable property insurance. The fact is, there are many areas of our country who do not have access to affordable property insurance. While this may not seem like a national problem, it most certainly is. Every area of our nation is prone to natural disasters, and when catastrophe occurs, we all foot the bill for the clean-up.
On Wednesday, I was part of a panel that shared views with Congress on how we can implement a more proactive approach to property insurance for natural disasters. Again, I urge you to read my testimony and help us educate REALTORS® in your state about the risks and costs that we all face on this issue.
There is a good reason why our reputation as REALTORS® is right up there with America’s doctors – we care as much about the people we serve as they do. That’s a credit to you – our members. I am grateful to President Vicki Cox Golder for assigning me to this important task, and am so proud to represent her, and you, on the Hill or wherever I go. – Charles McMillan, 2010 Immediate Past President
By now you’ve heard that FHA has made some changes to its program. FHA’s reserves are in danger at the moment, and the changes it has made will sustain the program for years to come.
I know that sometimes change doesn’t go over well. But in this instance, the changes are much better than expected and will keep FHA strong for the future of our business.
You can read about all of the modifications here, but let me highlight a few:
–NAR urged HUD to keep the down payment minimum to 3.5 percent. We’re thrilled they listened to us!
–Borrowers with FICO scores lower than 580 will now have to make a ten percent down payment. But most lenders are adhering to credit scores around 620 anyway.
–The upfront mortgage insurance premium will increase to 2.25 percent from 1.75 percent. In addition, FHA will still permit financing of these premiums. This is another Realtor® victory!
–Borrowers will only be able to accept seller concessions up to three percent, instead of the previous six percent.
As far as seller concessions go, my experience is that the average concession is rarely higher than 4.5 to 5 percent without decreasing the required 3.5% downpayment for the borrower based upon normal closing costs. But this change will be open for public comment, and NAR will be urging for an increase.
Yes, these changes will prevent some would-be buyers from owning a home right now. But they will keep borrowers safer in the long-run by weeding out those who may not be ready to purchase a home yet. In addition, FHA was facing strong pressure from the Administration and Congress to make even stricter modifications. NAR policy leaders met with FHA in December and helped influence less dramatic changes.
FHA has been a mortgage savior for the housing market in recent years. Homebuyers have been seeking help from the program in record numbers. I hope you’ll read about the changes and educate your clients on them.
I also hope you’ll let your clients know they have exactly 83 days from today to put a contract on a house and be eligible for the homebuyer tax credit.
By supporting programs like FHA and the homebuyer tax credit in the last year, Realtors® are jumpstarting the housing market and the nation’s economy in unprecedented ways.
Stay positive and keep up your stamina. I expect we will be sprinting to the finish come April. – Brooke Hunt, 2010 NAR Vice President and Liaison to Committees
In the classic movie, Mr. Smith goes to Washington, Jimmy Stewart’s character is appointed to fill a U.S. Senate seat and when faced with the reality of politics, he doesn’t back down.
Well, I may not be serving in Congress, but as your NAR President, my job is to represent you on critical issues. No matter how tough the challenge, you can count on me not to back down.
I just returned home to Texas after a full week in Washington, D.C., where I continued to press regulators on a few vital issues.
Last Wednesday, I met with FHA Commissioner Dave Stevens (a former REALTOR®) to discuss implementation of components of the Home Valuation Code of Conduct. We asked that FHA, Fannie Mae and Freddie Mac, adopt a consistent frequently asked questions document to address implementation concerns and codify that document with existing appraisal policy.
Commissioner Stevens agreed that requiring two appraisals in declining markets adds little benefit to underwriting and likely increases the cost of the transaction to the consumer. He also directed staff to work with the GSEs and New York Attorney General on our FAQ idea.
On Friday morning, I had a chance to meet with Freddie Mac’s new CEO Ed Haldeman, and HVCC was also on our agenda. Mr. Haldman agreed to work with FHA, Fannie Mae and the Federal Housing Finance Agency on a common set of FAQ’s. In fact, he promised that he would get back to me within two weeks with a status report.
The meeting with Freddie Mac was a great opportunity to talk about a few other hot issues.
Specifically, I thanked Freddie for coming out with guidelines that do not allow servicers to reduce commissions on short sales deals.
Mr. Haldeman also said that Freddie is willing to give waivers on their condo guidelines and he said they will be more vigilant in communicating with lenders on this issue.
We also learned that the Treasury Department and GSEs are working on guidelines related to short sales and the making Home Affordable program. We expect to see them in the next 30 days. Mr. Haldeman also agreed to emphasize the importance of short sales over foreclosures in discussions with the Treasury.
In Washington, D.C., progress can often be slow, but I am confident that the REALTOR® voice is the leading voice on policies that will define the future of our industry and our business. I urge you to get involved. Together, we can end 2009 on a high note, United Toward Tomorrow. – Charles McMillan, 2009 NAR President