FHA Commissioner: Government should act as backstop to private capital

Carol Galante shares her views on housing's future

Housing finance reform needs to be the government’s top priority as Washington D.C., goes back to work in the wake of the government shutdown, FHA Commissioner Carol Galante said Thursday.

While speaking at a housing forum sponsored by Zillow and the Bipartisan Policy Center, Galante noted that the Federal Housing Administration is addressing the dramatic shift in the process of credit overlays and the Home Equity Conversion Mortgage program — both of which are extremely risky assets.

For instance, the average credit score has hovered around 700 for the last few years. Currently, credit scores for FHA borrowers hover around 690, reflecting a shifting change in credit overlays.

The recent shift to lower credit scores is due to FHA losing higher borrowers to mortgage insurance companies, Galante explained.

The FHA Commissioner continued, "I’m not worried about the shift because we are priced appropriately for the mix of borrowers we are servicing."

The HECM program continues to be a constant headache for the FHA, which ultimately contributed to the first-ever Treasury draw of $1.7 billion to account for a lack of funds in the Mutual Mortgage Insurance fund.

As a result, FHA is taking dramatic steps to appropriately evolve the HECM program to better insure reverse mortgages for seniors.

For instance, FHA will provide more emphasis on housing counseling, financial assessments and reviewing a borrower’s ability over the long term to sustaining their reverse mortgage, Galante pointed out.

More interestingly, the HECM program now comes equipped with a new underwriting program to better ensure credit-eligible borrowers are using the services appropriately.

Housing finance reform is an inevitable journey the industry will take.

Therefore, FHA determined that the agency’s role needs to be a backdrop to private capital and also needs to be available to borrowers that would not be served by the private market.

Additionally, housing reform needs to create a path to the middle class by keeping homeownership affordable, especially for first-time homebuyers, Galante said.

"We have to make our housing finance system stronger, safe and more fair," Galante noted.

She concluded, "The opportunity is now and it’s too valuable to waste. We need to push these actions home over the next several months because housing is an engine to keep the economy on a full road to recovery."

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