Point – Counterpoint:   FHA Program – how much risk is right? 

March 8, 2010

FHA to the Mega-Lenders: Loosen Your Quals for Minorities

The Federal Housing Administration commissioner wants the nation’s largest originators to loosen their underwriting standards, allowing more minorities to qualify for government-backed single-family loans.  Many top ranked lenders voluntarily imposed a minimum 620 credit score in 2008 as subprime borrowers rushed to refinance into FHA loans. Commissioner David Stevens told minority real estate professionals that the lenders’ action has improved the performance of FHA loans and reduced defaults. However, the commissioner is now urging lenders to consider borrowers with lower FICO scores. "The one thing I will tell you, the difference in approval rates for African-Americans and Latino borrowers between 580 and 620 is significant," Mr. Stevens said. The commissioner noted that FHA is taking several steps to reduce default risk. But the agency does not want to raise the FHA 3.5% down payment requirement to 5%, despite congressional pressure. "If we had increased the downpayment to 5% we would severely impact the ability of a good family" to buy a home, he said. The FHA commissioner made his comments at a recent conference on minority home ownership.  National Mortgage News…

March 5, 2010

Study Sees FHA Taking More Risk

By NICK TIMIRAOS

The federal government’s mortgage-insurance agency is understating how much risk it has taken on, says a group of economists from the New York Federal Reserve and New York University, increasing the likelihood the agency may need taxpayer funds.

The economists warn that the Federal Housing Administration—which has jumped to fill the void left by the collapse of the private mortgage market—is overlooking factors that signal higher losses, according to a working paper released Thursday.

The agency has traditionally turned a profit for the U.S. government. But the economists warn that by underestimating the risks it faces, the FHA has increased the likelihood that it will have to ask Congress for money for the first time in its 75-year history.

The study doesn’t say how likely that now is, but "it’s hard to imagine that they won’t be returning to Congress several times," said Andrew Caplin, one of the authors and an economics professor at NYU. "It’s just inconceivable that the loans … will not cause very large losses."

The FHA says it would need taxpayer money only in a worst-case housing-market scenario.    more…  Wall Street Journal