Newly-installed Dept. of Housing and Urban Development
secretary Steve Preston said in remarks Tuesday
that a housing bill moving through the Senate could help contribute to the insolvency of the Federal Housing Administration if not amended before ostensibly heading to President Bush for signing.
The Senate version of a housing package currently under consideration (HR 3221
) contains provisions that would place a moratorium on so-called risk-based pricing for FHA mortgage loans, while still passing an overhaul of the FHA direct lending program that would see the government agency insure an additional $300 billion in mostly subprime mortgages refinanced from troubled borrowers. The House version of the package does not address risk-based pricing.
Risk-based pricing allows a lender to price its insurance premiums for borrowers according to their credit risk, a move that HUD is looking to implement on July 14 with a planned expansion of the FHASecure borrower assistance program rolled out by President Bush in August of last year. This will eliminate a pricing inequity that treats applicants with a low risk of default the same as those with a high risk of default.
The Senate package would bar that from taking place, a move that Preston said "would be a big mistake."
"FHA will have to increase premiums across the board on all borrowers or, alternatively, seek taxpayer funds in October to cover potential losses, or cut back on the program at the very time we are an island of hope for hundreds of thousands of Americans," he said in remarks delivered to an FDIC forum on affordable and low-income lending.
His remarks echo earlier warnings about the agency's solvency by FHA commissioner Brian Montgomery, who said in early June
that seller-funded down payment programs also threatened the solvency of the Depression-era program.
"We remain solvent and in good shape today," Preston said. "But no insurance company can continue to absorb losses of this magnitude."
Preston said that risk-based pricing was critical to FHA's ability to serve lower-income borrowers, noting that families with lower incomes often have higher FICO scores; forcing them to pay a higher insurance premium was hurting their homeownership chances, he argued.
"These are hard-working American families who live within their means and pay their bills on time," he said. "Pricing mechanisms should reflect that fact."
Whether the housing bill under consideration makes it out of the Senate, and can be presented to President Bush before this year out, remains uncertain. See an earlier HW report
on the bill's progress through the Senate.