FHA Reform Efforts Must Ensure Borrowers Have Access to Affordable Home Loans
With tight mortgage lending standards preventing well-qualified home buyers from obtaining home loans and impeding the housing and economic recovery, the National Association of Home Builders (NAHB) expressed support for congressional efforts to reform the Federal Housing Administration (FHA) but urged lawmakers to proceed in a cautious manner to avoid any disruptions to the nation’s housing finance system.
Testifying before the House Financial Services Subcommittee on Housing and Insurance, NAHB First Vice Chairman Kevin Kelly, a builder and developer from Wilmington, Del., pointed out the vital role that FHA played to help the housing sector emerge from its worst downturn since the Great Depression.
“While there is no doubt that the housing finance system needs to be reformed, the contributions that the FHA made during the economic downturn underscore the need for a government backstop for both the primary and secondary mortgage markets,” said Kelly. “In times of crisis, private sources of mortgage credit have been unable or unwilling to meet housing capital needs.”
Without government support for home purchasing and refinancing, Kelly warned lawmakers that the nation’s mortgage markets “will grind to a halt in times of economic stress and uncertainty.”
In 2006 before the housing downturn hit, FHA’s share of the market was a meager 3 percent as private financial institutions boasted a healthy presence. When the housing downturn hit, there was a role reversal, as private players fled the market and FHA-insured mortgages became the only credit option for first-time home buyers, minorities and those with limited down payment capabilities.
“This dramatic shift is evidence that FHA is performing its mission of providing the federal backstop to ensure that every creditworthy American has access to a stable mortgage product,” said Kelly. “As the private market assumes a greater role in the mortgage marketplace, maintaining an appropriate level of government support is essential to preserve financial stability, promote investor confidence and ensure liquidity and stability for homeownership and rental housing.”
Noting that the Federal Reserve and leading economists have warned that overly restrictive underwriting requirements are preventing creditworthy borrowers from accessing mortgage credit, Kelly called on lawmakers to take a long-term, holistic approach to housing finance reform.
“Changes to FHA’s programs cannot be separated from the larger discussion of reforming the complex housing finance system, including future reforms to Fannie Mae and Freddie Mac,” he said. “NAHB urges Congress to proceed cautiously and not to significantly alter the role of FHA programs.”
“Housing has led America out of every economic downturn and can do so again if the future policies regarding housing finance reforms are addressed in a manner that provides liquidity for the entire housing sector,” he added.