THUD Subcommittee Considers FHA Programs at Hearing

On April 25, the House Appropriations Subcommittee on Transportation, Housing, and Urban Development (THUD) held a hearing with General Deputy Assistant Secretary for the Office of Housing Dana Wade, currently serving as the acting Director of the Federal Housing Administration (FHA), as President Trump’s nominee, Brian Montgomery, has yet to be confirmed. The hearing focused on the progress of FHA’s programs and how they would be impacted by HUD’s proposed Fiscal Year (FY) 2019 budget.

Wade’s testimony addressed the financial health of FHA’s Mutual Mortgage Insurance Fund (MMIF), which funds FHA’s single-family mortgage insurance programs, citing several actions the Administration has taken to preserve the fund’s health and keep it at its statutorily mandated minimum capital ratio. These actions include suspending a scheduled reduction in annual mortgage insurance premiums for new FHA loans that was previously announced by the Obama Administration, changes to FHA’s Home Equity Conversion Mortgage (HECM) program, and prohibiting FHA from insuring loans for homes with Property Assessed Clean Energy (PACE) liens.

Wade noted most of MMIF’s recent losses have been a result of the HECM program, which had an economic value of negative $14.5 billion in FY 2017. Wade told the Subcommittee FHA’s home purchase mortgage portfolio continues to perform well, but that the agency has noted several trends with new FHA home purchase loans she said increase the likelihood of default, including an increase of loans with down payment assistance and loans with high loan-to-value ratios.

Wade also touched on programs under the purview of HUD’s Office of Housing, including Section 202 Housing for Elderly (Section 202) and Section 811 Housing for Persons with Disabilities (Section 811). Specifically, Wade thanked the Subcommittee for including language in the FY 2018 omnibus that would allow Section 202 project rental assistance contracts to convert under the Rental Assistance Demonstration (RAD) program, and informed the Subcommittee that HUD’s rental reform proposal released earlier in the day would not harm elderly and disabled households currently served by HUD.

Subcommittee Chairman Mario Diaz Balart (R-FL) opened his questioning by asking about transparency in the HECM program. Noting recent media reports on studies that showed increasing HECM default rates, he expressed concerned that these mortgages are negatively impacting the populations they were originally designed to serve. Wade responded by noting that the program is challenging to implement operationally, and that many reverse mortgage defaults result from borrowers receiving inadequate information about their loan’s terms. She said FHA is working to ensure that there is complete transparency for HECM borrowers.

Subcommittee Ranking Member David Price (D-NC) expressed opposition to HUD’s FY 2019 budget proposal, including the proposed $10 million cut in funding for HUD’s Housing Counseling program. Representative David Young (R-IA) was also concerned by cuts to the Housing Counseling program, asking how the program can be effectively carried out with such a large reduction. Wade responded that HUD is committed to making housing counseling programs as effective as possible while maximizing every dollar allocated to the programs.

Subcommittee members asked Wade about several other aspects of FHA’s single-family programs. Representative David Valadao (R-CA) raised concerns that many lenders who violated FHA policy in recent years faced legal challenges from the federal government under the False Claims Act, no matter how small the error. Wade told Valadao that the Administration shares his concerns and is working to ensure such actions are no longer taken against lenders for minor errors and to clarify its program standards. Valadao also asked Wade if she thought FHA should offload some of the risk associated with its single-family loans through credit risk-transfer transactions, similar to those used by Fannie Mae and Freddie Mac. Wade said HUD is currently looking into this issue.

Representative Peter Aguilar (D-CA) told Wade that FHA’s home purchase mortgage loans program is a critical source of homeownership lending for minority borrowers, but that many minorities live in high-cost housing areas, making it difficult for them to purchase a home that would qualify for an FHA loan. He asked Wade if she would be willing to support higher home price limits for FHA. Such limits are set by Congress, Wade said, and then noted that, at congressional direction, HUD is studying whether different limits are appropriate.

Aguilar also expressed concern about a passage in Wade’s written testimony in which she said FHA loan programs should be "targeted." He asked if this meant HUD should restrict FHA lending to only first-time homebuyers. Wade said that 82 percent of FHA loans in FY 2017 went to first-time homebuyers, but that HUD would not be advancing any formal targeting restrictions. Wade also told Aguilar that HUD hopes to release a final rule updating FHA’s standards for condominium loans in the next two months.

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