National Association of Realtors Calls for FHA Changes

The country needs a strong, viable Federal Housing Administration that delivers housing policies that ensure federal housing programs meet their mission responsibly and efficiently, the National Association of Realtors(R) stated today to a Senate subcommittee on housing.

NAR has called on Congress to enact legislation that will allow FHA to conform to today’s mortgage environment and reflect consumers’ needs and demands. Changes that FHA has proposed and that are supported by NAR include eliminating the statutory 3 percent minimum cash down payment and offering down payment flexibility; allowing the FHA to offer risk-based pricing; and increasing the loan limits for FHA loans.

"Because FHA has not changed with the times and has remained stagnant, a growing number of homebuyers are deciding to, or being forced to, use one of several types of nontraditional mortgages. It is not hard to imagine a lessening of those risky products, and therefore a lowering in the rising number of mortgage delinquencies, if the FHA had an effective alternative to offer them," said Joanne Poole, an NAR spokesperson and broker-owner from Maryland, in a hearing before the Senate Appropriations Subcommittee on Transportation, Housing and Urban Development.

In 1934, the FHA was established to provide consumers with an alternative during a lending crisis. Since then, FHA has insured more than 34 million properties. However, NAR noted that because FHA has not evolved, their market share has been dropping. "In the 1990s FHA loans accounted for about 12 percent of the market where today they are less than 3 percent," said Poole. "When formed, FHA was a pioneer of mortgage products, but today it has become like a lender of last resort."

The universal and consistent availability of FHA loan products is the principal hallmark of the program that has made mortgage insurance available, during periods of prosperity or depression, to individuals regardless of their racial, ethnic, or social characteristics, NAR noted in its testimony.

The FHA program makes it possible for higher-risk, yet credit-worthy borrowers to get prime financing. "By offering access to prime rate financing, FHA provides borrowers a means to achieve lower monthly payments, without relying on interest only or ‘optional’ payment schemes," Poole said.

When the housing market was in turmoil during the 1980s, FHA continued to insure loans when others left the market. Following the attacks on 9/11, FHA devised a special loan forbearance program for those who temporarily lost their jobs due to the attack. In addition, after Hurricanes Katrina and Rita, FHA provided a foreclosure moratorium for borrowers who were unable to pay their mortgages while recovering from the disaster. "FHA’s availability has helped to stabilize housing markets when private mortgage insurance has been nonexistent or regional economies have faltered. FHA is the only national mortgage insurance program that provides financing to all markets at all times," said Poole.

"Now, more than ever, FHA needs to be strengthened to continue to be useful and available to borrowers. FHA is a leader in preventing foreclosures," she said.

Despite its falling market share, the FHA fund is healthy and strong. The FHA capitalization ratio in 2006 was 6.82 percent, high above the congressional mandate of 2 percent. FHA reports its current economic value at over $22 billion.

Since its inception, FHA has never needed a federal bailout and has been completely self sufficient. In fact, FHA has contributed a significant amount of money to the Federal Treasury each year. FHA loans also have a foreclosure rate lower than many of the riskier, nontraditional mortgage products.

"FHA’s mission is to promote homeownership for all. We at NAR, and each of our members, applaud this mission and the positive effects FHA has on the housing market. With substantive reform, we believe that FHA will help thousands more families to achieve and live the dream of home ownership. We look forward to working with Congress to make this a reality," said Poole.

The National Association of Realtors(R), "The Voice for Real Estate," is America’s largest trade association, representing more than 1.3 million members involved in all aspects of residential and commercial real estate industries. NAR is the leading advocate for homeownership, affordable housing and private property rights.

Information about NAR is available at http://www.realtors.org. This and other news releases are posted on the Web site’s "News media" section in the NAR Media Center.