FHA Chief: Hits From Down-Payment Assistance Threaten Agency's Future
It doesn't get much more stark than the barb lobbied by Federal Housing Administration commissioner Brian Montgomery on Monday afternoon -- stop allowing down-payment assistance, or send the FHA into insolvency. "Data clearly demonstrates that FHA loans made to borrowers relying on seller-funded downpayment assistance go to foreclosure at three times the rate of loans made to borrowers who make their own downpayments," Montgomery said at a National Press Club event. Such loans are currently one-third of the government agency's portfolio, he added, and led the agency to book an additional $4.6 billion in unanticipated long-term losses in an annual re-estimate. "No insurance company can sustain that amount of additional costs year after year and still survive," he argued. "Unless we take action to mitigate these losses, FHA will soon either have to shut down or rely on appropriations to operate." The admonishment by Bush adminstration officials over down-payment assistance programs comes as lawmakers are increasingly looking to the Depression-era agency to backstop a flailing housing market; Mongtomery said that HUD would reopen to public comment a hotly-contested proposed rule that would look to ban the down-payment assistance program. "We are concerned about this business because the substantial losses affect FHA’s bottom line and FHA’s ability to serve American citizens who need access to prime-rate home loans," he said. "Given these concerns, we cannot just stand by – we must make our case again." It's a case that met with stiff resistance the first time around, particularly from the nonprofit organizations that provide the so-called DPA programs. "Losing one third of the FHA's business that uses downpayment assistance will deny annually over one hundred thousand qualified moderate income, minorities, first-time homebuyers and women-headed households from becoming homeowners," said Ann Ashburn, president of AmeriDream, Inc., a large down-payment assistance provider. She argued that denying key groups the ability to purchase a home would further destabilize an already-wobbling housing market. Political currency It's becoming clear that attempts by lawmakers to push troublesome loans into HUD's arms may have their financial -- and perhaps their political -- limits. In his remarks Monday, Montgomery alluded to a mortgage relief proposal backed by House Financial Services Committee chairman Barney Frank (D-MA), characterizing the proposal as "well intentioned" but also "worrisome," suggesting that it would "endanger the housing market" by asking the FHA to assume the risk on an increasing number of bad loans. "FHA is designed to help stabilize the economy, operating within manageable, low-risk loans," Montgomery said. "It is not designed to become the federal lender of last resort, a mega-agency to subsidize bad loans. "We don’t want to dramatically enlarge FHA’s portfolio, with a substantial portion of the portfolio problematic, high risk loans that cost homeowners who were careful and bought homes within their means." The Bush administration has strongly opposed Frank's version of the housing/foreclosure relief package, with the President vowing a veto, while implicitly backing a compromise bill currently awaiting Senate consideration that would ban down-payment assistance for FHA-endorsed loans. While the Senate has yet to formally consider the bill -- a product of compromise between Senator Chris Dodd (D-CT), chairman of the Senate Committee on Banking, Housing and Urban Affairs, and Senator Richard Shelby (R-AL), the ranking Republican on the committee -- various media reports suggested Monday that Congressional Democrats are already hard at work behind closed doors to fast-track a joint housing proposal that integrates both the House and Senate proposals (read earlier coverage).