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THE FHA REFORM ACT OF 2010 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

HOUSING AND COMMUNITY OPPORTUNITY 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

MARCH 11, 2010 

Printed for the use of the Committee on Financial Services 

Serial No. 111–110 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

CHARLES A. WILSON, Ohio 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

BILL FOSTER, Illinois 

ANDRE ́ CARSON, Indiana 

JACKIE SPEIER, California 

TRAVIS CHILDERS, Mississippi 

WALT MINNICK, Idaho 

JOHN ADLER, New Jersey 

MARY JO KILROY, Ohio 

STEVE DRIEHAUS, Ohio 

SUZANNE KOSMAS, Florida 

ALAN GRAYSON, Florida 

JIM HIMES, Connecticut 

GARY PETERS, Michigan 

DAN MAFFEI, New York 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

BILL POSEY, Florida 

LYNN JENKINS, Kansas 

CHRISTOPHER LEE, New York 

ERIK PAULSEN, Minnesota 

LEONARD LANCE, New Jersey 

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III) 

SUBCOMMITTEE ON HOUSING AND COMMUNITY OPPORTUNITY

MAXINE WATERS, California, Chairwoman 

NYDIA M. VELA ́ ZQUEZ, New York 

STEPHEN F. LYNCH, Massachusetts 

EMANUEL CLEAVER, Missouri 

AL GREEN, Texas 

WM. LACY CLAY, Missouri 

KEITH ELLISON, Minnesota 

JOE DONNELLY, Indiana 

MICHAEL E. CAPUANO, Massachusetts 

PAUL E. KANJORSKI, Pennsylvania 

LUIS V. GUTIERREZ, Illinois 

STEVE DRIEHAUS, Ohio 

MARY JO KILROY, Ohio 

JIM HIMES, Connecticut 

DAN MAFFEI, New York 

SHELLEY MOORE CAPITO, West Virginia 

THADDEUS G. McCOTTER, Michigan 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

RANDY NEUGEBAUER, Texas 

WALTER B. JONES, JR., North Carolina 

ADAM PUTNAM, Florida 

KENNY MARCHANT, Texas 

LYNN JENKINS, Kansas 

CHRISTOPHER LEE, New York 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

March 11, 2010 ................................................................................................. 1 

Appendix: 

March 11, 2010 ................................................................................................. 39 

WITNESSES 

THURSDAY, MARCH 11, 2010 

Alston, Mark, First Vice President, Consolidated Board of Realtists, on behalf 

of the National Association of Real Estate Brokers .......................................... 32 

Anderson, Mike, CRMS, President, Essential Mortgage, and Vice Chairman 

of Government Affairs, National Association of Mortgage Brokers ................. 22 

Aponte, Graciela, Legislative Analyst, Wealth-Building Policy Project, National Council of La Raza .................................................................................... 23 

Caplin, Andrew, Professor of Economics, Co-Director, the Center for Experimental Social Science, New York University ..................................................... 25 

Courson, John A., President and Chief Executive Officer, Mortgage Bankers 

Association ............................................................................................................ 26 

McMillan, Charles, CIPS, GRI, Immediate Past President, National Association of Realtors ..................................................................................................... 28 

Stevens, Hon. David H., Assistant Secretary for Housing/FHA Commissioner, 

U.S. Department of Housing and Urban Development ..................................... 4 

Taylor, John, President and Chief Executive Officer, National Community 

Reinvestment Coalition ....................................................................................... 30 

APPENDIX 

Prepared statements: 

Alston, Mark ..................................................................................................... 40 

Anderson, Mike ................................................................................................. 50 

Aponte, Graciela ............................................................................................... 62 

Caplin, Andrew ................................................................................................. 70 

Courson, John A. .............................................................................................. 78 

McMillan, Charles ............................................................................................ 86 

Stevens, Hon. David ......................................................................................... 95 

Taylor, John ...................................................................................................... 113 

(1) 

THE FHA REFORM ACT OF 2010 

Thursday, March 11, 2010 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON HOUSING AND

COMMUNITY OPPORTUNITY, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 2:09 p.m., in room 

2128, Rayburn House Office Building, Hon. Maxine Waters [chairwoman of the subcommittee] presiding. 

Members present: Representatives Waters, Velazquez, Maffei; 

Capito, Neugebauer, and Jenkins. 

Also present: Representative Garrett. 

Chairwoman WATERS. This hearing of the Subcommittee on 

Housing and Community Opportunity will come to order. 

Good afternoon, ladies and gentlemen. I would like to thank the 

ranking member and other members of the Subcommittee on Housing and Community Opportunity for joining me today for this hearing on the FHA Reform Act of 2010. 

This is our third hearing on the Federal Housing Administration 

since October of last year. During those hearings, we learned about 

the state of FHA’s capital reserve levels, which dropped below the 

2 percent threshold mandated by Congress to .53 percent, along 

with the efforts FHA has taken to tighten controls over risk. 

Today, we are here to discuss the additional steps FHA would 

like Congress to take to ensure FHA’s long-term financial solvency 

during what some observers are referring to as the housing equivalent of a 500-year flood. 

First, FHA would like to increase the cap on the annual mortgage insurance premiums it can charge in order to boost capital reserves. The bill would allow FHA to increase the cap from .55 percent to 1.55 percent for new borrowers, with downpayments below 

5 percent. However, FHA has said that they will only raise annual 

premiums to .90 percent, and would also use their existing authority to lower the up-front premium back down. 

As I understand it, if FHA limits the premium increase to .90 

percent, new borrowers would only see their monthly payments rise 

by $42 a month. I believe that limiting the premium increase balances the need to keep FHA financially solvent while minimizing 

the impact on new borrowers. However, I would like to hear more 

information from the Commissioner about the circumstances under 

which FHA would need to raise annual premiums to 1.55 percent 

of the loan balance. 

2 

Second, FHA is also seeking the authority to crack down on lenders that use fraud or misrepresentation or don’t originate or underwrite loans in accordance with FHA requirements. In addition, 

FHA would like the ability to withdraw originating and underwriting approval for a lender nationwide based on the performance 

of one or more of its regional branches. 

These legislative provisions will help FHA continue its increased 

policing of problem lenders. FHA has already stepped-up enforcement, withdrawing 10 times as many lenders from FHA approval 

in 2009 than the last Administration did in 2008. 

I have been long committed to ensuring that FHA remains an 

available, affordable, and safe option for all families. I wrote legislation to modernize FHA, which was included in the Housing and 

Economic Recovery Act of 2008. I also worked with Representative 

Speier of California and Representative Driehaus of Ohio on legislation to keep subprime lenders out of FHA, which was incorporated into the Helping Families Save Their Homes Act of 2009. 

I look forward to continuing to work on sensible legislation that 

will balance the requirement to restore FHA’s financial solvency 

with the requirement that we need to keep FHA available to a 

wide variety of Americans, including low-income, minority, and 

first-time home buyers. 

However, as we move forward, we need to be cautious that we 

do not overcorrect and end up curtailing the role of FHA to the 

point where homeownership is only available to the wealthiest 

households. 

I am eager to hear the testimony of our witnesses today. And I 

would now like to recognize our subcommittee ranking member, 

Ms. Capito, to make an opening statement. 

Mrs. CAPITO. Thank you. I would like to thank Chairwoman 

Waters for holding this hearing today on an issue that I believe deserves immediate attention and action by this committee, and that 

is reform of the Federal Housing Administration. 

As my colleagues know, last fall, Housing Commissioner Stevens 

testified before this subcommittee on the challenges faced by FHA’s 

Capital Reserve Account, which fell below the mandated 2 percent 

of FHA insurance in force. Not only had the account fallen below 

2 percent, it fell to .53 percent of the total insurance in force. 

Clearly, this is a wakeup call for Congress and the Administration. And if we don’t take the steps necessary to shore-up the FHA 

Insurance Fund, we will be facing another taxpayer bailout. 

I am encouraged by the steps that Commissioner Stevens has already taken to resolve the problems facing the FHA. He has made 

several administrative changes and is moving forward with additional regulations to address the difficulties at FHA, such as increasing the up-front premiums, raising the downpayment for low 

FICO score borrowers, and reducing seller concessions. 

In addition to the administrative and regulatory changes, the Administration is seeking legislative changes to increase the annual 

premium and increase enforcement on FHA lenders. 

I support the Administration’s efforts, but we can do more. Last 

night, I introduced H.R. 4811, the FHA Safety and Soundness and 

Taxpayer Protection Act. This legislation builds on the Administration’s legislation by making the chief risk officer a permanent 

3 

member of the FHA Commissioner’s team—and I commend him for 

appointing his current chief risk officer—and giving the Commissioner the ability to contract out to properly analyze risk, and enhancing the Commissioner’s ability to temporarily suspend lenders 

who have high rates of early defaults. 

Additionally, my legislation includes a pilot program for riskbased pricing, something I have talked about in the subcommittee 

before. I realize the Commissioner and I may not see eye-to-eye on 

this issue, but I hope that we can work together to find some common ground and the flexibility needed to implement risk-based 

pricing. 

As the housing market recovers, and the FHA program returns 

to a more normal percentage of the total market, risk-based pricing 

would be an important tool, I believe, for the FHA to have in their 

arsenal. 

Finally, I think it is important to note recent CBO re-estimates 

of the Administration’s Fiscal Year 2011 budget. The Administration’s submitted budget estimated that FHA and Ginnie Mae receipts would be $6.9 billion. These receipts were used to offset a 

$48.5 billion HUD budget. 

CBO has just this past week re-estimated the FHA and Ginnie receipts to be only $2.5 billion, a $4.4 billion shortfall. CBO has 

said that the discrepancy between OMB and CBO can be attributed 

to the fact that CBO uses higher prepayment and default rates and 

lower recovery rates. 

But this raises significant concerns, again, on the FHA’s ability 

to analyze its book of business. I hope the Commissioner will take 

some time and address this issue for us today. 

I look forward to working with the chairwoman and Chairman 

Frank and the Administration to enact these common-sense reforms included in my legislation, H.R. 4811. This legislation incorporates the majority of the provisions announced by the Department, along with additional provisions designed to give HUD the 

tools it needs to adequately administer the program and protect the 

taxpayer. 

Thank you for being here today, and I look forward to hearing 

from you and the other witnesses on the panel. Thank you. 

Chairwoman WATERS. Thank you very much. 

Representative Maffei, for 2 minutes. 

Mr. MAFFEI. Thank you, Madam Chairwoman. I am very pleased 

that you called this hearing. I think it is very important. 

I do think it is going to be very valuable to have our questions 

answered. I have several constituents, actually, who have a lot of 

concerns about many of these proposed policy changes. And I would 

say that it comes down to them being worried about the unintended consequences of some of them. One of the largest, perhaps, 

is that small mortgage lenders may be put at a disadvantage compared to large mortgage lenders, and in fact may not even be able 

to stay in business compared to some large ones because of some 

of the proposals. 

And I am writing the Secretary on this, and I actually would ask 

unanimous consent that I could just put my letter to the Secretary 

in the record. 

Chairwoman WATERS. Without objection, it is so ordered. 

4 

Mr. MAFFEI. Another unintended consequence is potentially a 

slowdown in the economy. I mean, obviously we want to make sure 

that we avoid a next housing crisis. But we don’t want to get in 

the way of perhaps an economic recovery that is on the way. And 

I also remain concerned about whether these changes will necessarily fully address what actually happened, and I share that 

with the Ranking Member. 

My district is actually pretty unique, I suppose, in that we actually had very little subprime lending, much less predatory lending 

than virtually anywhere else; as a result, lower foreclosures. This 

isn’t because we are a wealthy area; in fact, quite the opposite. We 

never had any real estate boom in upstate New York, and so we 

never had the bust. 

And the problem is, as the constituent groups come in, whether 

they are Realtors, small business, small mortgage lenders, etc., and 

they look at the changes and they go, well, we didn’t have any of 

these things, and these changes would, in effect, slow down our 

real estate market, which is not in need of slowing down, frankly. 

It is in need of speeding up. 

And so I am a little concerned about sort of the one-size-fits-all 

approach. I am not sure if it is avoidable. And again, I believe 

these are unintended consequences. I think you have done a lot of 

work here. But I do have some questions as regards how these will 

affect my constituents. 

Thank you very much. Thank you, Madam Chairwoman. 

Chairwoman WATERS. I am pleased to welcome our first distinguished guest. Our first witness will be the Honorable David Stevens, Assistant Secretary for Housing and Federal Housing Commissioner, U.S. Department of Housing and Urban Development. 

I thank you for appearing before the subcommittee today. An 

without objection, your written statement will be made a part of 

the record. You will now be recognized for a 5-minute summary of 

your testimony. Thank you. 

STATEMENT OF THE HONORABLE DAVID H. STEVENS, ASSISTANT SECRETARY FOR HOUSING/FHA COMMISSIONER, U.S. 

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT 

Mr. STEVENS. Chairwoman Waters, Ranking Member Capito, and 

members of the subcommittee, thank you for the opportunity to testify here today regarding the Federal Housing Administration’s recent reforms, legislative proposals, and contributions to the HUD 

Fiscal Year 2011 budget request. 

I appear before you at a moment when it is clear that our housing market has made significant progress towards stability. As of 

September, stabilizing home prices and lower financing costs had 

increased home equity by over $900 billion, $12,000 on average for 

the Nation’s 78 million homeowners. 

Confidence deriving from increased home equity has helped the 

economy grow at the fastest rate in 6 years and create jobs. Historically low mortgage rates have spurred a refinancing boom over 

the past year that has helped nearly 4 million borrowers save an 

average of $1,500 per year, pumping $7 billion annually into local 

economies and businesses. 

5 

FHA has been an essential part of this improved outlook, in the 

past year helping more than 800,000 homeowners refinance into 

stable, affordable, fixed-rate mortgages, protecting an additional 

half-million families from foreclosure, guaranteeing approximately 

30 percent of all home purchased loan volume in America and fully 

half of all loans for first-time home buyers. 

Indeed, as access to private capital has contracted in these economic times, borrowers and lenders have flocked to FHA. The increased presence of FHA and others in the housing market, including Fannie Mae and Freddie Mac, has helped support liquidity in 

the purchase market, helping us ride through these difficult times. 

And with FHA financing 51 percent of African-American homes 

purchased in 2008, and 45 percent of Latino homes, FHA is far and 

away the leader in helping minorities purchase homes. 

With FHA’s temporarily increased role, however, comes increased 

risk and responsibility. Last October, I detailed to the subcommittee several of the reforms we had made to date to mitigate 

risk and replenish FHA’s capital reserves, which have fallen below 

the congressionally mandated 2 percent. 

On January 20th, we proposed additional steps, some of which 

will require legislative authority. Thank you for the opportunity to 

explain these proposals in more detail. 

These policy changes balance three guiding principles: first, improving FHA’s loan performance and capital reserves; second, continuing to support the broader housing market and recovery; and 

third, preserving FHA’s traditional role in providing homeownership opportunities to responsible underserved borrowers. And I 

want to highlight the word ‘‘responsible.’’ 

First, we are asking Congress for authority to restructure FHA’s 

mortgage insurance premiums, and we would like to reduce the upfront premium to 100 basis points and increase the annual premium to 85 and 90 basis points depending on the loan-to-value. 

This will create more sustainability to increase FHA’s reserves 

and facilitate the return of private capital to the mortgage market. 

The bill is in circulation. We have provided the subcommittee with 

a copy of that proposal. 

If these changes are adopted during the current fiscal year, they 

increase the value of the MMI fund by approximately $300 million 

per month, which would replenish FHA’s capital reserves even faster than if this authority was provided through the annual appropriations process. 

We look forward to working with the authorizing committee 

members. We hope the appropriators and authorizers will move to 

pass it on as expeditiously as possible. And we certainly look forward to considering H.R. 4811 and how that can blend into the 

goals of FHA. 

Secondly, FHA is proposing a two-step FICO floor for FHA borrowers. Purchase borrowers with FICO scores of 580 and above will 

be allowed to make the minimum 31⁄2 percent downpayment. Those 

with scores between 500 and 579 would be required to make a 10 

percent downpayment. 

Some have suggested that FHA raise the minimum requirement 

to 5 percent across-the-board as a way to improve loan performance. As you can see, we have gone further, to 10 percent for FICO 

6 

scores below 580 to ensure that we are only insuring responsible 

loans. 

We determined after extensive evaluation that an across-theboard 5 percent proposal would be inadequate to control risk for 

some of the borrowers, and excessive to control risk for other responsible borrowers, which would adversely impact the housing 

market recovery. 

Increasing the minimum downpayment to 5 percent across-theboard translates to 300,000 fewer responsible first-time home buyers having access to homeownership, and would have significant 

negative impacts on the broader housing market, forestalling the 

recovery of the housing market, potentially leading to a double dip 

in housing prices by significantly curtailing demand. 

The policy changes that FHA has instead proposed in the Fiscal Year 2011 budget contribute an additional $4.1 billion in receipts 

to FHA, and have a much more moderate impact on the broader 

housing market. 

The third policy change we are proposing is to reduce the maximum seller concessions from 6 percent to 3 percent, which is in 

line with industry norms. The current level exposes the FHA to excessive risk by creating incentives to inflate appraised value. Further, our experience with FHA with these loans is that loans with 

higher levels of seller concession are more likely to go into default. 

Our fourth proposal is to further increase lender enforcement. In 

its Fiscal Year 2009 actuarial review, the independent actuarial review, the independent actuary projected that more than 72 percent 

of FHA’s losses over the next 5 years will come from loans already 

on our existing books. That is why we have renewed our focus on 

enforcement and lender accountability. 

Since Fiscal Year 2009, we have taken action on more than 6 

times the number of lenders that FHA had done in the past decade. 

We are seeking congressional authority to extend FHA’s ability to 

hold lenders to the same standard and permit FHA to recoup losses 

through required indemnification for loans that were improperly 

originated or in which fraud or misrep was involved. 

FHA currently has the authority for loans originated through the 

lender-insured process, which accounts for less than a third of all 

FHA-approved lenders. We are asking that Congress grant explicit 

authority to require indemnification for loans that were improperly 

originated for all FHA lenders. 

Finally, as you know, last Friday the CBO released its estimate 

of the Fiscal Year 2011 budget, including the review of FHA 

changes. Although the CBO re-estimate includes a significantly 

more conservative assessment of how new loans were made 

through FHA’s MMI fund and how it will perform in coming years, 

both CBO and the Administration forecast, with our proposed FHA 

changes, credit activities, that it will result in let receipts to the 

government that are positive to the government, meaning a negative subsidy. We differ, however, on the amount. 

While the President’s budget forecasts $5.8 billion in net receipts, 

resulting primarily from insurance premium and other fees, CBO 

re-estimates those net savings at $1.9 billion. They agreed with 

Ginnie Mae, and the GISRI fund will result in roughly another $1 

billion from receipts. 

7 

While recognizing that such a difference with CBO complicates budget resolution development, it is important to note that the $5.8 

billion in receipts forecast in the President’s budget will determine 

any receipts transferred back to FHA’s capital reserves. This will 

help the fund get back on track to be capitalized with the statutorily mandated 2 percent insurance in force. I would also note that 

we remain confident in our forecast. 

I have submitted more detailed testimony for the record. But 

Madam Chairwoman, as you can see, we have proposed a comprehensive set of reforms to improve loan performance, hold lenders accountable, and increase revenues to the FHA fund, while ensuring that FHA continues to support the overall recovery of the 

housing market and continues to serve its mission of providing 

homeownership opportunities for responsible borrowers. 

I would like to take this opportunity also to introduce two members of our new leadership team. To my left, Bob Ryan, FHA’s first 

Chief Risk Officer; and Vicki Bott, our Deputy Assistant Secretary 

for Single-Family Housing. Both Vicki and Bob come with over 2 

decades of experience in the housing market, and are part of the 

new force behind FHA. 

We look forward to working with Congress closely on these 

issues, and we hope to gain your support for our legislative request 

to further reduce risk to the American taxpayer. And with that, I 

am happy to answer any questions you may have. Thank you. 

[The prepared statement of Commissioner Stevens can be found 

on page 95 of the appendix.] 

Chairwoman WATERS. Thank you very much. I recognize myself 

for 5 minutes. 

Let me again welcome you to this hearing today. Allow me also 

to recognize that you have had to take some tough steps in order 

to ensure the solvency of FHA. I am appreciative for the work that 

you have done to do that. It was not easy for me to look at what 

had to be done and simply agree to it. But I recognize what has 

brought us to this point in this center relative to the economic 

meltdown and the role that subprime played in that, and so I know 

what must be done. 

Let me also commend you on the steps that you have taken to 

deal with the problem lenders, the fraud and the abuse that I think 

helped to cause problems relative to the subprime meltdown. So 

the work that you are doing to police these lenders is extremely important. 

Again, I like what I see. I am anxious to look at your bill, your 

proposals that you have. And I understand that our ranking member has something that she is working on, so we will certainly entertain that. 

However, having said that, I am hopeful that we can correct the 

problems that we are confronted with and make sure that you are 

meeting the mandates that you are responsible to meet in terms 

of your reserve. 

I want to know what factors would lead FHA to lower the annual 

premium back down to .55 percent? Would FHA lower their premium back down when, for example, reserve levels are recapitalized above the 2 percent level, interest rates rise, you find that minority and low-income home buyers are disproportionately excluded 

8 

from homeownership? What would cause you to take a different 

course to make sure that we were providing opportunity for all? 

Mr. STEVENS. Thank you for your comments and your support. 

Let me try to talk about the fee in this context, and I would love 

to have Bob jump in after I make some initial comments about the 

fees. 

I bought my first loan with an FHA loan back when rates were 

21 percent, and the mortgage insurance premium back then was 

3.8 percent. The fees with FHA loans have changed over time. As 

you recall, that period of time was also a housing crisis, which we 

now refer to as the ‘‘oil patch’’ crisis. And it resulted in high foreclosure rates and, quite frankly, is the most similar book that we 

see to today. 

Now, we would never go back to that level; at least, I don’t foresee that. But clearly, what drives the need to adjust premiums, as 

with any kind of insurance business, is looking at the forecasting 

of risk on a go-forward basis. 

And today, what has impacted FHA’s capital reserves so dramatically are a couple of things that are now resulting in the need 

to raise the fees, the most important of which is home price forecasts, home price appreciation forecasts. That is the single greatest 

determinant on what ultimately caused this default in the FHA 

portfolio. 

We have seen several series of declining forecasts on home 

prices. Now, at present, the current home price numbers are right 

in line with the forecast, and so there is some reason for potential 

optimism. But that doesn’t eliminate the fact that the risks that 

the portfolio has taken on in these past book years are going to 

cause extended losses over the years to come as these loans go 

through the default cycle. 

And it is for that reason that we feel very strongly that the premiums must be increased, and that they need to be restructured 

in a way that makes it more palatable for consumers to pay on an 

as-you-go basis by increasing the annual premium; also, to allow an 

opportunity for private capital to come back in. 

That being said, I would still be very clear. Just like in past 

years when the premiums have been higher and were lowered, you 

could see a point in time in future years where premiums would 

adjust depending on expected performance of the portfolio. 

And before I let Bob just jump in, as it relates to the underserved 

communities that FHA has traditionally been here to serve, we pay 

vigilant focus on making sure the policies we implement are effective in getting the capital reserves to where they need to go, that 

put us in a position of ensuring responsible homeownership over 

the long term, but have policies that also take into significant consideration the impact to the underserved. And I can assure you 

that is a top objective of mine in this Administration. 

Chairwoman WATERS. Thank you. My time has expired. I am 

going to call on the ranking member, Ms. Capito, for 5 minutes. 

Mrs. CAPITO. Thank you. The FHA currently is insuring loans up to $729,750 in maximum high-cost areas, and the limits for conforming loans are similar. I think we need to look, and you have 

mentioned it in your statements—we need to look at how we are 

going to bring the private market back in, and FHA is going to step 

9 

back into maybe what would be a more traditional role for FHA 

and a more manageable role. 

Are the higher loan limits an impediment at all to that effort of 

bringing the private markets back in? I know you mentioned when 

we had a meeting last week that this isn’t really a very large part 

of the FHA market. But if you could speak to that issue. 

Mr. STEVENS. Sure. I think that is a great question, and it is 

something that we look at closely. It is concerning, and particularly 

the point that you made about returning to our normalized level. 

There are two issues associated with this. 

First of all, there is a complete absence, which I think we all recognize, of private capital in the mortgage finance system for a 

broad range of home buyers today. And the temporary limits, 

which today extend to 125 percent of median income up to the 

maximum loan amount of over $700,000, that loan amount is actually only available in select markets around the country because of 

the median sales price formula, home price formula. 

That being said, once that expires, the temporary limits, the permanent authority is 115 percent of median income up to still a fairly high number. And that has been allocated FHA. 

I think the most important thing we need to do to make sure 

that private capital reemerges is to create an environment where 

confidence and stability exists in the housing sector. 

When home prices stabilize, unemployment amends, private capital will come back. Will FHA play a role in these high loan balance 

markets over the long run? Our expectation is that will not be the 

case. Even today, less than 3 percent of our portfolio is over 

$417,000. So we don’t even see a large influx of these high-dollar 

loans under the current scenario. 

Mrs. CAPITO. Okay. Thank you. Another question I have is on 

this downpayment issue. It is 3.5 percent now; for those with FICO 

scores of 580 and below, you have moved it to 10 percent. And 

again, a conversation that we had in the past, I would like for you 

to enumerate for me again why you don’t believe that moving the 

downpayment up to a 5 percent across-the-board—and you address 

this in your opening statement— 

Mr. STEVENS. Yes. 

Mrs. CAPITO. —that is not the great predictor of whether there 

is going to be a default or whether there is not enough skin in the 

game. 

That is an issue, that is a bone of contention, with a lot of members on my side of the aisle. And I would just like to have you on 

the record on that one more time, please. 

Mr. STEVENS. Thank you. And I really do appreciate you asking 

the question because it is clearly one of the strong items that has 

been debated around the FHA program since I was sworn in in 

July. 

Fundamentally—and I want to just show you some data in a moment—but fundamentally, FHA is not in the layering of risk business like the private sector was, and even to some degree the GSEs 

participated in, where FHA loans are all owner-occupied, all primary residence, all fully documented, and all 30-year fixed-rate 

fully amortizing loans. 

10 

I don’t want that to be understated because the only real risk 

variable, aside from lenders adversely selecting FHA and making 

sure we have FICO guidelines in place to protect the portfolio—the 

only real risk variable at that point ends up being the equity portion, the downpayment portion, which we have decades of history 

on that portfolio and the FHA program. 

Can I see which slide we have up there, please? So I want to 

show two slides to highlight that. The first one I think you and I 

went over in your office last week. This slide, if you look at the 

cells on the far left, that shows FICO scores below 580. 

And you can see on a relative basis the performance of—and I 

want you to look at the upper yellow bar on that chart. It shows 

that the relative performance of loans below 95 percent loan-tovalue are worse when you combine it with a low FICO score. Or, 

conversely, in the middle bar, the bottom highlighted area will 

show you that the performance is better at higher LTVs if you offset that with a FICO above 580. 

And so the point to this slide is merely to say that when we did 

our analysis, we looked at making sure that responsible homeownership would continue, and that we could measure the performance 

variables associated with a FICO LTV mixture and DTI, which is 

important. 

If I could just show one other slide. And which one is—yes, thank 

you. So what this chart highlights to you is the impact of our policy 

changes. And as you can see, the top line on that chart highlights 

that the fallout from our policy changes, that is the—those are the 

people who would no longer be eligible for a home loan with FHA 

based on our policy changes. 

And you can see that their default rate is extremely high. It is 

over 30 percent. That is the portfolio that will no longer be able to 

get an FHA loan with our changes. The lower section— 

Mrs. CAPITO. What is that? I can’t see that, and I can’t— 

Mr. STEVENS. It is 31 percent, about 32 percent. 

Mrs. CAPITO. Okay. Thank you. 

Mr. STEVENS. Excuse me. And that is— 

Mrs. CAPITO. I was trying to show off with my eyesight, but it 

was not working. 

Mr. STEVENS. Yes. And that is the critical component when we 

made our decisions going through the analysis, to make certain 

that we didn’t exclude responsible homeownership in the changes 

we made. 

But we went further. And unlike the 5 percent downpayment 

suggestion that some have made, we believe that downpayment 

makes a difference when you have poor credit or credit histories 

that don’t support a higher loan-to-value. 

So we went further than 5 percent. We went to 10 percent down 

if your credit score is 580. And we have clear performance variables 

to correlate that with the performance histories on our portfolio 

through a variety of scenarios. 

Mrs. CAPITO. Well, thank you. And the charts are very helpful, 

especially if you can see them. So I appreciate that. 

Mr. STEVENS. I apologize for that. 

Mrs. CAPITO. No. That is my fault. Thank you. 

Chairwoman WATERS. Thank you very much. 

11 

Ms. Velazquez? 

Ms. VELAZQUEZ. Thank you, Madam Chairwoman. 

Mr. Stevens, the three major credit reporting agencies found that 

about 21 percent of the 11.9 million consumers who obtained 

subprime loans during the housing boom should have received 

prime loans that would have saved them thousands of dollars. Yet 

FHA is relying on the same system to determine new downpayment requirements. 

So my question to you is: Why are you relying on such a terrible 

way to determine creditworthiness? 

Mr. STEVENS. I think that is a wonderful question. And it really 

helps, I think, juxtapose what we saw during the peak of the housing boom, with the enormous growth of subprime, and what caused 

defaults in that portfolio versus the FHA portfolio. 

And without getting too much into the weeds on all the complexities between the two, it is—without question, subprime loans perform 300 percent, 3 times worse, than FHA portfolios do. And actually, delinquency rates are rising faster even in Fannie and Freddie 

portfolios than FHA portfolios are on a monthly basis. 

FICO is not the sole determinant. And I do respect your question. FICO is one of a variety of determinants, documentation and 

other. And FHA does have an alternative credit program that we 

have been planning to roll out on a pilot basis to test that going 

forward. 

But that being said— 

Ms. VELAZQUEZ. But 21 percent is a huge number. 

Mr. STEVENS. But the real question is: Of the 21 percent who 

would have qualified for FHA loans, would they have even performed in an FHA mortgage? And to be clear, if you look at our 

2006, 2007, and 2008 portfolios, sub-580 FICO scores have delinquency rates and expected long-term claim rates that are north of 

25 percent. And in fact, in that lower FICO distribution, it even 

goes higher. 

So the fact that those subprime borrowers could have gotten 

FHA loans, the one question I would ask—and we will go back and 

look at it even more closely, but I could show you in the FICO distribution—would they even have performed in an FHA loan? And 

we are seeing that same lower credit score has extraordinarily high 

defaults. 

And my concern is if we are foreclosing on one in four borrowers 

or one in three borrowers as a result of policies that allow people 

to get into homes, we are destroying their credit ratings and describing their wealth-building capabilities by the mere act of getting them into the homeownership process too soon or when they 

are not ready. 

So I think there is that sensitive balance that we have to be very 

careful of. 

Ms. VELAZQUEZ. Are you taking any steps to improve the accuracy of credit scores? 

Mr. STEVENS. We are. So we have met with all the credit reporting agencies, and they themselves are also going through a change 

in how they model credit. And it actually might be worthwhile at 

some point having them come in and talk about it because today, 

unlike in past years where the capacity was not as strongly measVerDate Nov 24 2008 17:27 Jul 15, 2010 Jkt 056774 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 K:\DOCS\56774.TXT TERRIE
12 

ured in models, today they are looking at us each of credit, not just 

the frequency of repayment. 

And we do believe that credit scores today have become more 

benchmarked against a real performance than perhaps some of the 

inflated credit scores that we saw during that past period. I don’t 

know if that answers your question. 

Ms. VELAZQUEZ. Okay. It does. 

Mr. STEVENS. Thank you. 

Ms. VELAZQUEZ. Mr. Stevens, many industry advocates oppose 

applying FHA’s indemnity authority to the direct endorsement 

lenders for fear that it will make them overly restrictive in their 

lending. Given that lenders in the lender insurance program are 

currently subject to this authority, and are consistently the most 

prolific of FHA’s lenders, how realistic is this concern? 

Mr. STEVENS. And this is another important question that we get 

out in the open as we talk about it. 

So first of all, today we can pursue indemnification. But LI lenders, which is what we are allowed to pursue today, only account for 

about a third of all originations. There are many other lenders who 

can get approved by FHA, and the indemnification ends up being 

restricted when they ultimately fund the loan and being able to go 

direct to them. 

So we believe, like with all participants in the housing finance 

sector, that we should have the right to be able to require indemnification from any lender who is approved as an FHA lender, 

whether they are a direct endorsement lender or an LI lender, and 

hold them responsible for the loans they originate. 

And I think it is critical for all of us, particularly when we think 

about many of the underserved communities that FHA has served, 

because we saw a propensity for lenders to prey on, sometimes, 

those with less comprehensive financial skills. And it is very important when we think about sustainability and responsibility, and 

that indemnification will go a long way to ensuring those participants understand the rules. 

Ms. VELAZQUEZ. And to guard against increasing losses, FHA has 

proposed to increase the downpayment for borrowers with FICO 

scores to more than twice the amount that other borrowers pay. 

This is going to have a significant impact on Hispanic and AfricanAmerican borrowers. 

Are there any other ways for FHA to strengthen the quality of 

loans to these individuals without abrogating its mission to help 

borrowers who are underserved by the private market? 

Mr. STEVENS. First, let me try to articulate the answer. And I 

can—the one thing that is absolutely certain is your question was 

fundamental to the reason why we ended up with the policy decisions we made. And so let me articulate these. And this is—again, 

I will try not to get too technical; what I will offer up is any followup information that you or your staff would like to have. 

Today, the largest financial institutions in the mortgage finance 

sector have FICO scores that are well above 580. Most are at 620 

to 640 or higher. And that includes the top five banks that originate mortgages in America, which today under a consolidating environment have an enormous impact on the overall credit availability to homeowners. 

13 

The reason why we picked 580 was based on actual loan performance. And, as I said in my opening comments, one of the lenses 

that we ran all our policies through was our mission, our commitment to the mission of FHA and making sure that all responsible 

homeowners, underserved across the country, had access to available credit. 

580 will actually open up the credit box from what has happened 

over 2009 via the consolidation amongst these large institutions. 

And it is our hope that the large institutions will actually move 

back to our policy, which we believe will expand the market. 

Now, I will tell you this, that the 580 does limit— 

Ms. VELAZQUEZ. Your time has expired. That is what she is trying to tell you. 

Chairwoman WATERS. A long time ago. 

Mr. STEVENS. Okay. I understand the hammer. 

Chairwoman WATERS. A long time ago. And we can follow up in 

writing, and you can respond to the members’ questions. 

I am now going to call on Ms. Jenkins for 5 minutes. 

Ms. JENKINS. Thank you, Madam Chairwoman. I would like to 

yield my time to my colleague from West Virginia, Congresswoman 

Capito. 

Chairwoman WATERS. Without objection, it is so ordered. 

Mrs. CAPITO. Yes. Thank you. 

A question I have: Along the same lines of increasing the 

downpayments, it is my understanding that you are going to increase—or that the annual—or the premium, the up-front premium, has been increased to 2.25 percent, which the buyer can 

then finance, can still be financed into the mortgage amount, which 

then, I think, this approach raises the mortgage amount facing the 

borrower and effectively reduces the equity that the borrower has 

in on the loan. 

Should FHA require some portion of the up-front premium to be 

paid in cash rather than allowing it to all be rolled into the mortgage to then get back to the skin in the game, the more obligation? 

Mr. STEVENS. Yes. We considered all aspects of the skin in the 

game from the home buyer when they go into a home. The one 

variable which we do know from a clear performance characteristic 

is when the borrower saves up a 31⁄2 percent downpayment themselves, and puts it down for a downpayment, that we see a clear 

performance variable that is different from all others. 

The mortgage insurance premium has been financed in the mortgages going back decades. We looked at it very closely. We do believe 21⁄4 percent being financed up-front does pose some additional 

risk to the portfolio, which is why one of the measures we are trying to do through legislation is to lower the up-front downpayment 

to 1 percent and then charge—and then increase the annual so the 

borrower pays as they go. 

That does a couple of things. One, it plays exactly into your concern, which is a concern we share as well from a risk standpoint. 

But in addition to that, it will allow, we believe, more private segment participants, the mortgage insurance industry, to return to 

the market as well, which I think is fundamentally critical to getting this housing— 

Mrs. CAPITO. Because you are lowering that up-front premium? 

14 

Mr. STEVENS. Well, the way private mortgage insurers work is 

they typically don’t charge a large up-front premium, if at all. And 

they charge an annual premium, which is charged monthly in the 

payment. 

Mrs. CAPITO. Right. 

Mr. STEVENS. By us collecting it all up front, financing the loan, 

we are really creating a barrier for the private industry to return 

to the mortgage finance sector, which is an absolute priority for us. 

We need to create an environment where the private sector can 

compete, and this premium change will help them do that. 

Mrs. CAPITO. Okay. In my opening statement, I talked about the 

difference between the CBO and the White House’s number. I am 

not sure I quite followed your explanation of that, if it in fact it 

is a $4.4 billion difference there in the calculations. That is concerning, especially with the capital reserve fund being as low as it 

is. 

Mr. STEVENS. Right. 

Mrs. CAPITO. Have you looked at having an independent auditor 

come in and look at this and evaluate it to make sure your numbers are on target? Because I think this is going to be extremely 

important as we move through this year. 

Mr. STEVENS. Yes. Thank you. Well, first, let me tell you how our 

budget was created. An independent actuary firm scores and looks 

at the FHA policy changes, and they do their own independent assessment of what that is going to mean to the reserves. 

That ends up being submitted to the Office of Management and 

Budget. OMB then does their own independent assessment of what 

we submitted, and in fact, they made a series of changes to the 

numbers that the independent actuary firm came up to, although 

not as dramatic as the Congressional Budget Office did. 

And they ended up having a different home price forecast, different severity rates, different prepayment speeds, and a variety of 

factors that ultimately ended up scoring it differently. It was that 

budget from OMB, that scoring, that went into the President’s 

budget. 

Mrs. CAPITO. Right. 

Mr. STEVENS. CBO, which we are looking at closely, looked at a 

variety of characteristics. And we are studying those carefully. We 

believe that the numbers submitted in the President’s budget are 

more accurate, and we stand by them. 

We look forward to seeing what the appropriating committees do 

ultimately in making their decision, and how they weigh the CBO 

estimates against the OMB estimates because it is ultimately their 

decision. 

But again—and if requested, I would be glad to go into further 

detail. But there is a variety of characteristics of the CBO scoring 

that we believe is worth consideration. But we stand by the OMB 

submission. 

Mrs. CAPITO. Okay. One quick question. Would you say the single most beneficial reform that you are asking for and has been 

made up to this date to replenish the capital reserve is the annual 

premium option rather than—and then lowering the up-front premium? 

Mr. STEVENS. Absolutely. So the annual premium— 

15 

Mrs. CAPITO. $300 million a month? 

Mr. STEVENS. Yes. The annual premium increase has a very positive impact, obviously, to increasing receipts. The new, requested 

authority to go down to 1 percent and increase the annual actually 

produces greater receipts to the fund. Single greater impact, but I 

don’t want to underemphasize, and I know you have it in the bill 

that you submitted as well, the importance of enforcement. 

Mrs. CAPITO. Right. 

Mr. STEVENS. Our worst books are what is going to cause over 

three-quarters of the losses going forward. And that was basically 

by bad lender behavior, preying on our portfolio. As you know, we 

have shut down 350 lenders in the 6 months I have been in the 

job. That is, you know, far and away multiple times more than 

what was done in the previous decade. 

We are getting the bad players out. But through authority by legislation, we will be able to do more. That has a huge impact on institutions preying on your portfolio that have equal impact. 

Mrs. CAPITO. Thank you. 

Chairwoman WATERS. Thank you. 

Mr. Maffei? 

Mr. MAFFEI. Thank you, Madam Chairwoman. 

Commissioner, thank you very much for being here today. I first 

want to just ask about the reduction in the allowable seller concessions from 6 to 3 percent. I understand the difficulty with the seller 

concessions. It increases the amount borrowed often, and, given a 

tough economy as we have seen in many parts of the country, most 

parts of the country, a reduction of housing prices can lead to some 

difficult results. 

I guess my question, though, is: Are we being a little bit reactive 

in terms of cutting it in half? And particularly cutting it in half immediately with no phase-in whatsoever. 

I am concerned because as we do see the housing market start 

to recover, I don’t want to, as I said in my opening statement, have 

a policy that kind of artificially reduces the amount of sales that 

there are, slowing down the housing market and not necessarily 

completely avoiding the problem anyway since you are still going 

to have seller concessions. 

I am wondering where the FHA is at all amenable to some—either making it more gradual or making it less severe or something 

like that over time. And if you can address my concerns? 

Mr. STEVENS. Thank you for the question. First of all, let me just 

say that this will go out for open comment, and there will be a 30- 

day comment period. And you have members of the National Association of Realtors on the next panel, Charles McMillan and others, 

who will express, I am guessing, their concern about the seller concession. 

Mr. MAFFEI. That might be—yes. 

Mr. STEVENS. Let me just be very clear that our concern on seller 

concessions, in a similar way to other programs that have involved 

the seller in the financing of a home, is that we clearly can correlate seller concessions, high seller concessions, with performance. 

And it is our belief that high seller concessions that are higher 

than what Fannie Mae, Freddie Mac, and other industry players do 

artificially inflates the value. Or, put another way, if a seller is 

16 

going to sell a home, and their bottom line is $200,000, and they 

are being asked to pay a 6 percent seller concession, 3 percent 

more than they would normally do for any other lender, we believe 

that 3 percent extra basically will ultimately show a $206,000 sales 

price or something along those lines. 

In other words, when the seller is participating in the financing 

of the home, you lose that arm’s length independence. In addition 

to that, the fact that we are unique in allowing higher concessions 

provides opportunity for FHA, and ultimately the taxpayer, to be 

adversely selected. 

I have spoken to the real estate industry nationally. I have spoken to home builders nationally. I know there is concern. But the 

one thing I will assure you, and I have the data in front of me: The 

performance on 6 percent seller concessions is 11⁄2 times worse on 

the total portfolio than those with 3 percent seller concessions. 

That turns into very significant claims numbers for the portfolio 

with no additional insurance coverage for FHA. 

So the comment period is there. We will absolutely listen during 

the comment periods. And I assure you we will be glad to respond 

further if there is— 

Mr. MAFFEI. What about—obviously, it maybe needs to be corrected. But what about some sort of transition period so it doesn’t 

have an adverse effect on the economy or on particularly home 

sales recovering in the near term? 

Mr. STEVENS. I think you make a very good point. We need to— 

in the comment period, if that is suggested, we will take everything 

under consideration. 

FHA, in my view, coming into this position has multiple years of 

deferred maintenance where no changes were made to the portfolio, 

and it is suffering the consequences today. We do not have the luxury to not make the changes that are absolutely necessary to ensure performance and make FHA a responsible, trusted financial 

services vehicle in the system, particularly since the taxpayer is 

backstopping it. 

The performance is too clear on this. However, again, I am very 

open to seeing what comes back during the comment period. We remain very engaged, and I have an open door policy to the industry 

to come in and express their concerns. 

So we will listen as we go forward. And I take that, and we will 

listen to your recommendations. 

Mr. MAFFEI. Yes. And you may hear from me as well. 

On the increase in net worth requirements for mortgage lenders, 

this is particularly concerning to some of the mortgage lenders in 

my district who tend to be quite small. They are family-owned 

businesses, frankly, you know, a couple of people. 

And it is not—it is not that it be raised at all. It is just that, 

again, you are going from a dramatic raise of increased net worth 

from $250,000 to $2.5 million within 3 years. I am very worried 

that is going to crowd out smaller mortgage brokers. I am very 

worried it is going to reduce competition. 

It also could chill sales of homes, which, by the way, would then 

keep home values low if they are not selling and combine to the 

rest of our problem. 

17 

So we would like you to address that, and also if you could give 

me your opinion of—the National Association of Mortgage Brokers, 

I believe, has a proposal to at least increase the phase-in period. 

Mr. STEVENS. We received a large volume of comments during 

the comment period on this rule. We have the comment period, it 

has ended, and we are planning on releasing the rule here in the 

near term. 

So I want to assure you that we listen to those concerns. As I 

hope you are aware, our rule planned to go to a million dollars initially, of which 20 percent of that has to be tangible capital. So our 

capital rule that we are initially rolling out is actually far lower 

than what most institutions require. 

In my role in the private sector, I ran a small mortgage banker for a period of my career, and we had $7 million in capital for a 

fairly low amount of volume because it was required by our warehouse lender to hold that in reserves. 

I feel very confident that the final rule will take into consideration the concerns the like of which you just suggested. And while 

I can’t state what is going to be in the final rule, obviously, because 

it is not released yet, I think that point has been heard loud and 

clear. 

Mr. MAFFEI. I appreciate it, Commissioner. And if the committee 

would just indulge me for a minute, my concern, though, is again, 

because of the recession, it is a lot harder to come by capital right 

now. And so an increased transition would be very helpful there. 

Thank you very much. 

Mr. STEVENS. I appreciate your comments. 

Chairwoman WATERS. Thank you. 

Mr. Neugebauer? 

Mr. NEUGEBAUER. Thank you, Madam Chairwoman, and Mr. Stevens for being here. 

I want to go back to the new policy of the 10 percent downpayment on FICO scores of 579 and, I guess, lower. How many borrowers—how many loans have you approved with people—let’s just 

say the first—nearly the first quarter of this year. How many loans 

have you approved with FICO scores of 579 or lower? 

Mr. STEVENS. A very small percentage, and I will get you the 

exact figure. But let’s assume it is less than 3 percent today. 

But if I could, those books are scoring at very high rates that 

even the CBO, which is the most conservative estimate, expects to 

produce positive revenue to the taxpayer. What the problem has 

that occurred at FHA is we have—a large percentage of the portfolios from 2006, 2007, and 2008 were well below 580. And they 

have cumulative default expectations of in the mid-30 percent 

range on those sub-580 portfolios. 

And my fear is not to tighten up from what is coming in the first 

quarter of this year; FHA is insuring the best quality book it has 

ever insured in history. In history. But my concern is that as competition reemerges and lenders do what lenders do, that they will 

go back down the credit score chain again, once again, to compete. 

And we saw it so clearly, even, last year when I first got sworn 

in. Taylor, Bean & Whitaker was competing at credit scores well 

below 580, even though the large institutions weren’t there. And 

they were our third largest issuer in 2009. 

18 

And so what this floor will do is it is not—I don’t think the goal 

is to stop the quality of borrower coming in today. It is to protect 

FHA so that these terrible books from 2006, 2007, and 2008, which 

are causing the vast majority of our default problems, never can reemerge. And that was the purpose. 

Mr. NEUGEBAUER. I am glad you brought that up because I 

would be interested. I am sure you are tracking this because you 

have the numbers. But if you could furnish me a bracket of FICO 

scores and your default rate within those FICO scores to get a handle on that. And also, if you could give us an origination percentage 

within those FICO scores. 

Mr. STEVENS. I would be happy to do that. 

Mr. NEUGEBAUER. The other issue is that in 2008, Congress, as 

you know, banned third party seller-funded downpayment assistance to groups that were participating with FHA. 

I think you alluded to that a little bit, but I would like for you 

to repeat what you just said. That is where some of your higher 

default rates are? Is that correct? 

Mr. STEVENS. That is correct. Seller-funded downpayment assistance loans account singly for our worst default experience in the 

worst book years of FHA. And I do want a caveat. I have had several meetings with Congressman Green where he is eager to see if 

there is a way to look at a pilot that might reemerge the program. 

I can tell you from professional experience in my history and 

what is clearly evidence in the FHA portfolio that the seller-funded 

downpayment assistance loan was a bad loan. It is producing cumulative expected claim rates north of 30 percent. Our current 30- 

plus delinquency rate on that portfolio alone is 35 percent. 

So we are getting close to one in two; we are over one in three 

borrowers are in delinquency. And I think that loan particularly 

preyed on select communities in this society. It was not sustainable. 

It was bad for homeowners who are going to have their credit ultimately wrecked by the program. And I thank Congress for eliminating that program at the beginning—effective the beginning of 

2009. 

Mr. NEUGEBAUER. Yes. I think you made a good point. I think 

the purpose of FHA was to promote homeownership. But it was 

also really designed to promote sustainable homeownership. And, 

I think we get focused sometimes on what the owned housing percentage is and how many Americans own. And certainly that is the 

American dream. 

But housing is in really two forms. People can rent and people 

can own. But I think what we need to focus on, and we did a great 

injustice to a number of people, was that—and I think the United 

States Congress was as guilty as anybody—is we have to get that 

ownership percentage up at any cost. 

The only problem with that was is the American taxpayers, depending on what you are able to do with the fund, may ultimately 

have to pick up this tab. But they have already picked up the tab 

in loans outside the FHA realm. 

So—is my time already up? 

Chairwoman WATERS. Yes, it is. 

Mr. STEVENS. Could I make a quick response? 

19 

Mr. NEUGEBAUER. Yes, please. 

Mr. STEVENS. I appreciate your comments— 

Mr. NEUGEBAUER. That other information, if you can follow up 

with— 

Mr. STEVENS. We will get you the information. 

Chairwoman WATERS. Without objection, Representative Garrett 

will be considered a member of this subcommittee for the duration 

of this hearing. 

You are recognized for 5 minutes. 

Mr. GARRETT. Thank you. And the duration of the hearing will 

be probably just 5 minutes, then. 

[laughter] 

Mr. GARRETT. Two or three quick questions. The first one I think 

you may have touched on before I came in. I am going to be going 

to budget next week—I think you touched on this; I would like to 

hear your answer in a little more detail. 

OMB has a figure of $6.9 billion. That is a little bit above what— 

Ginnie Mae at actually 5.8; CBO has 1.8. I was watching the TV 

when someone at the Blair House was saying that if we can’t go 

by CBO scores and we don’t have one place we can go to that is 

nonpartisan or is bipartisan and what have you, as far as relying 

on their numbers, then we have no place to go. 

Why should we not be looking to the CBO number on this at 1.8 

as opposed to the 5.8 that the Administration comes out with? 

Mr. STEVENS. Thank you for the question. I have to admit I am 

a private sector person who has come into government in July to 

take on this role, and facing— 

Mr. GARRETT. Good luck. 

Mr. STEVENS. —facing the FHA challenges. So, honestly, comparing the validity of CBO over OMB, I think, having gone through 

the analytics of the FHA portfolio, which we have had reviewed by 

multiple participants both within the Administration and outside, 

there are varying views on how any change scores. 

And it has to do with prospective views of home price forecasts, 

severity rates, default rates— 

Mr. GARRETT. Prepayment rates. 

Mr. STEVENS. —prepayment speeds, all those variables, and interest rates. 

Mr. GARRETT. And is that all considered by the OMB numbers 

in—but obviously— 

Mr. STEVENS. Yes. In fact, the OMB numbers disagreed with 

IFE, who is the independent actuarial firm, a well-known nonpartisan individual actuarial firm that did the FHA independent 

work. And I am sure another firm would look at it slightly differently. 

They all score with positive receipts. Clearly, CBO’s is concerning. 

Mr. GARRETT. Okay. Along that line—and maybe you have this— 

but a recent academic study on the FHA MMI fund report raised 

questions about the claims assumption for FHA’s refinanced loans, 

as well as the accuracy of the actuarial modeling used by the FHA 

when they found the MMI fund at below the 2 percent minimum 

capital requirements, still greater than zero. 

20 

Additionally, Federal budget documents made clear that the FHA 

has consistently underestimated its claims for years, and that 

model changes to the FHA actuarial model have had to be made 

to account for some $37 billion in reestimated costs. 

And so maybe your answer to this one is a quick ‘‘yes.’’ Is the 

FHA willing to consider an independent review of the current actuarial models so that Congress can feel more confident in the numbers that it receives? 

Mr. STEVENS. Thank you for the question. There is no question 

that there is risk in the FHA portfolio. 

Mr. GARRETT. Right. 

Mr. STEVENS. I said it when I was being sworn in for this job, 

and in testimony. So we are all concerned about the risk, and we 

are concerned about variability of outcome. And certainly if Congress chose to have an independent look, that would be your purview to do so and we would welcome that. 

Mr. GARRETT. So even without us taking all the rigmarole of a 

congressional action? 

Mr. STEVENS. I am very open to the idea. I want to make sure 

we do it under appropriate controls, and that it doesn’t create another problem, a unintended consequence that I am unaware of. 

But I really do encourage people to have access to our information. And just in relationship to the study that was recently done, 

an academic study, the one that I am guessing you are referring 

to, it is interesting. It is another one of many. 

I have seen a lot of studies done that raise concerns about the 

FHA. Nobody is more concerned about FHA risk than Bob Ryan, 

Vicki Bott, and myself, and the new team who have come in to look 

at this. 

That is why we have put so many changes in place that have 

been the most aggressive changes that have ever been done at FHA 

in my professional history to try to get FHA back on the right 

track. And it is broad and far-reaching and has budget impacts. 

I do believe there are many flaws in this particular study. And 

not only do I, but we have had it reviewed by a variety of other 

academics who feel the same way. But I don’t want to understate 

the fact that what this study does, as well as many others, is it 

points out that given the variables in the FHA portfolio, there are 

concerns to be had. 

Now, I just believe this study has some very unique flaws to it. 

Mr. GARRETT. Let me get to the other point—I only have about 

a minute left—and that is with the downpayment requirements, 

initially, when I proposed legislation to raise those downpayment 

requirements, the pushback I heard from the Administration was 

there is basically no correlation, it is not necessary to do that. We 

can make some of these other adjustments in other areas prior to 

your tenure here, perhaps. 

And now I am glad to see that there is some admission that 

there is some degree of correlation here, and you are going to look 

at it with low FICO scores with higher downpayment requirements. So that is the first step in the direction of saying that there 

is a correlation between default rates and downpayment requirements. 

21 

The question then is: Have we gone far enough in that regard 

that—we know the FICO score is something that can be manipulated. All you have to do is turn on the TV and you will see people 

say how to improve your scores and what have you. So that is not 

a true figure and an accurate 100 percent barometer in all sense. 

So is there potential to move even further in this direction towards a consistent level of downpayment requirements in light of 

the fact that FICO is just one variable? 

Mr. STEVENS. Yes. And Congressman— 

Mr. GARRETT. Can you answer that? Just answer that in the next 

10 seconds? 

Chairwoman WATERS. Yes. You may take a minute to answer. 

Mr. STEVENS. The answer is we are absolutely open, and believe 

that risk controls need to be in place appropriately. And we have 

taken the most aggressive steps to get responsible borrowers only 

approved in the FHA portfolio. And that has concerns a variety of 

participants in the industry. 

Would we consider going further? We absolutely would consider 

anything necessary to get the FHA portfolio on the right track. I 

actually would say to your—the 5 percent proposal, I mean, that 

is why we went further and went to 10 percent. But we do know 

that FICO has a relationship. 

I would love the opportunity to come in and meet with you and 

your staff. I recently met with many of the staff of the— 

Mr. GARRETT. Right. 

Mr. STEVENS. —Republican members on the committee, and I 

am—our team would love to come in and talk through the data 

with you because we believe that it is very important to have the 

responsible decision-making needed to keep this FHA portfolio on 

track. 

Mr. GARRETT. Okay. Great. I appreciate it, and look forward to 

it. Thanks a lot. 

Chairwoman WATERS. Thank you very much, Mr. Stevens. Thank 

you very much. We appreciate your being here today. The Chair 

notes that some members may have additional questions for this 

witness which they may wish to submit in writing. Without objection, the hearing record will remain open for 30 days for members 

to submit written questions to Mr. Stevens and to place his responses in the record. 

This panel is now dismissed. I thank you very much for being 

here, and I would like to welcome our second panel. Thank you. 

I am pleased to welcome our distinguished second panel. Our 

first witness will be Mr. Mike Anderson, vice chair of government 

affairs, National Association of Mortgage Brokers and president, 

Essential Mortgage. 

Our second witness will be Ms. Graciela Aponte, legislative analyst, Wealth-Building Policy Project, National Council of La Raza. 

Our third witness will be Mr. Andrew Caplin, professor of economics, co-director of the Center for Experimental Social Science, 

New York University. 

Our fourth witness will be Mr. John A. Courson, president and 

CEO, Mortgage Bankers Association. 

Our fifth witness will be Mr. Charles McMillan, president, National Association of Realtors. 

22 

Our sixth witness will be Mr. John Taylor, president and CEO, 

National Community Reinvestment Coalition. 

And our seventh witness will be Mr. Mark Alston, first vice 

president, Consolidated Board of Realtists, on behalf of the National Association of Real Estate Brokers. 

I thank all of you for appearing today. I am especially appreciative—Mr. Alston, I know that the Realtors just had a convention. You just left. But you graciously decided to come back, and 

we are very appreciative of that. 

Without objection, your written statements will be made a part 

of the record. And we will start with our first witness, who will be 

recognized for 5 minutes, Mr. Mike Anderson. 

STATEMENT OF MIKE ANDERSON, CRMS, PRESIDENT, ESSENTIAL MORTGAGE, AND VICE CHAIRMAN OF GOVERNMENT 

AFFAIRS, NATIONAL ASSOCIATION OF MORTGAGE BROKERS 

Mr. ANDERSON. Good afternoon, Chairwoman Waters, Ranking 

Member Capito, and members of the subcommittee. I am Mike Anderson, a certified residential mortgage specialist, and vice chairman of the government affairs committee for the National Association of Mortgage Brokers. 

In addition to serving NAM as a volunteer member, I am a licensed mortgage broker in the State of Louisiana, home of the New 

Orleans Saints, Super Bowl champions—had to throw that in—and 

I have over 31 years of experience. 

I would like to thank you for this opportunity to testify today on 

the changes being proposed by FHA. My written testimony addresses the full range of policy changes happening at FHA, but I 

will focus my remarks this afternoon on just a few of the specific 

changes proposed. 

I would like to thank Commissioner Stevens for his dedicated efforts to strengthen and protect the FHA loan program and the FHA 

insurance fund. NAM applauds his efforts and looks forward to 

working with the Commissioner going forward. 

However, we are worried that there could be unintended consequences, and we believe there might be better approaches to certain aspects of the policy changes proposed in the FHA Reform Act. 

NAM hopes to work with HUD and this committee to attempt to 

resolve some of these issues. 

First, we would like to work with HUD and this committee on 

the increased mortgage insurance annual premium fees of 1.55 percent. NAM believes a blanket increase, like the one proposed in the 

Reform Act, may stifle the housing recovery and could increase 

foreclosures even further by depleting the available pool of home 

buyers. 

The MIP increase unnecessarily targets all buyers in every area 

of the country. The increase will lead to increased payments and 

reduce qualified borrowers We are particularly concerned that lowincome and minority home buyers will be most negatively impacted. 

NAM proposes that the FHA institute fee increases, if at all, 

based on actual risk posed by areas of the country that have high 

levels of defaults and experience substantial declines in home values. Why should the housing markets that restrained themselves 

23 

during the boom years have to pay for the irrational exuberance of 

those who did not? 

Another issue that NAM would like to work on is the appraisal 

ordering. We believe that an FHA appraisal ordering system should 

be put into place to guarantee complete portability of appraisals so 

that consumers can save money. 

NAM has advocated for many years for the removal of the unnecessary audit and net worth requirements for mortgage brokers’ participation in the FHA program, provided that brokers are safe and 

compliant. Legislation introduced last Congress by Representative 

Miller and cosponsored by Representatives Sherman and Baca required such changes that are now being advocated by the FHA. 

However, NAM believes it is important for loan correspondents 

to maintain some status with HUD and with FHA, and to regain 

access to the FHA system. Specifically, NAM believes loan correspondents must be able to obtain case numbers for FHA loans 

and communicate directly with FHA. Inability to communicate with 

the FHA or access FHA Web sites will make it virtually impossible 

to determine whether a borrower is even eligible for FHA financing. 

Finally, NAM supports statutory changes to the permanent increase to the FHA conforming loan limits so that all consumers can 

benefit from the program, including those in high-cost areas such 

as California. Too often, in the wake of our current financial crisis, 

we have seen new rules promulgated that do not reflect measured, 

balanced, and effective solutions to the problems facing consumers 

and our markets. 

NAM commends HUD for its work to strengthen and protect the 

FHA program. But we believe there is still work to be done in 

order to avoid some of the same pitfalls and unintended consequences that have resulted from other recent policy changes. 

NAM appreciates the opportunity to appear before this committee, and we look forward to continuing to work with you and 

with HUD to craft solutions that are effective in helping consumers 

but do not unreasonably disrupt the market or competition. 

And I would just like to make it clear that if these proposed 

changes are what it is going to take to fix FHA, we are willing to 

work with everybody involved. Thank you. 

[The prepared statement of Mr. Anderson can be found on page 

50 of the appendix.] 

Chairwoman WATERS. Thank you very much. 

Ms. Aponte? 

STATEMENT OF GRACIELA APONTE, LEGISLATIVE ANALYST, 

WEALTH-BUILDING POLICY PROJECT, NATIONAL COUNCIL 

OF LA RAZA 

Ms. APONTE. Good afternoon. My name is Graciela Aponte. I handle NCLR’s legislative and advocacy work on issues critical to 

building financial security in Latino communities. For more than 

7 years, I have been working on issues that impact low-income 

communities, and prior to joining NCLR, I worked as a bilingual 

housing counselor. 

NCLR is the largest national Hispanic civil rights and advocacy 

organization in the United States. Last year, our network of HUDVerDate Nov 24 2008 17:27 Jul 15, 2010 Jkt 056774 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 K:\DOCS\56774.TXT TERRIE
24 

approved counseling agencies served more than 50,000 families. I 

would like to thank Chairwoman Waters and Ranking Member 

Capito for inviting us to share our views on this important topic. 

In my testimony today, I will discuss changes proposed in the 

FHA Reform Act of 2010. I will also provide recommendations on 

how to further strengthen the FHA program. Overall, FHA stands 

out as a major success of the Administration’s recovery efforts. 

My comments today will focus on three questions that we use to 

evaluate the bill. Number one: Does it create new barriers for 

Latino home buyers? Number two: Does it protect FHA borrowers 

against predatory lenders? Number three: Will it promote sustainable homeownership? 

On the first question, we found that the legislative changes will 

not likely create new barriers to affordable credit for modest income Latino families. However, more must be done. For example, 

FHA did not address the issue of expanding homeownership opportunities to underserved communities. 

Measures that would address this concern include more flexible 

lending products, increased efficiency in underwriting, and incentives for borrowers who seek pre-purchase counseling. For example, 

NHN counselors are reporting difficulty securing mortgages for borrowers who use nontraditional credit, including timely rent payments, utility, and other payments. 

Counselors also report that the FHA underwriting process is taking too long, affecting home buyers’ chances of purchasing REO 

and short-sale properties. These inefficiencies allow investors, instead of first-time home buyers, to snatch up properties. 

Also, NCLR is disappointed that FHA did not take this opportunity to create an incentive to encourage pre-purchase counseling 

for first-time home buyers. Counselors play a key role in preparing 

families for homeownership. Families who participate in counseling 

are less likely to default on their mortgage. Clearly, this would 

have the added benefit of preventing foreclosures and future 

claims. 

On the second question, we recognize that some steps have been 

taken to protect home buyers. However, FHA needs to do more in 

this area. For example, in an initial review of FHA’s Neighborhood 

Watch early warning system, the online tool was not user-friendly. 

We hope to work with HUD to improve this site, including a portal for the public to submit and view complaints. The true test will 

come over time when HUD demonstrates its willingness to enforce 

its own provisions. 

On the third question of sustainable homeownership, FHA did 

not take any steps to boost foreclosure prevention efforts to help 

stabilize communities. FHA has strong loss mitigation tools that 

have successfully kept millions of families in their home. However, 

these services are of little use to a family who does not receive 

them. 

While HUD mandates that FHA servicers aggressively pursue 

loss mitigation, few resources are dedicated to enforcing this provision. In a recent survey, we found that 76 percent of housing counselors rate the knowledge of lenders of FHA loss mitigation tools 

as fair or poor. 

25 

Ultimately, NCLR supports the changes proposed in the FHA Reform Act of 2010 to provide future financial stability to the program. However, a reinvigorated and assertive FHA program is critical to stabilizing the housing market and the broader economy. 

In that spirit, NCLR makes the following recommendations to 

strengthen the FHA program, restore homeownership opportunities, and protect homeowners and taxpayers: increase transparency 

and enforcement in FHA lending; provide incentives to borrowers 

who seek homeownership counseling; increase access to flexible 

lending models; make loss mitigation accessible to all FHA borrowers, and enforce its proper implementation by servicers; and increase funding for HUD-approved housing counseling agencies. 

In my written testimony, you will find specific details about each 

of these recommendations. I will be happy to answer any questions. 

Thank you. 

[The prepared statement of Ms. Aponte can be found on page 62 

of the appendix.] 

Chairwoman WATERS. Thank you very much. 

Mr. Caplin? 

STATEMENT OF ANDREW CAPLIN, PROFESSOR OF ECONOMICS, CO-DIRECTOR, THE CENTER FOR EXPERIMENTAL SOCIAL SCIENCE, NEW YORK UNIVERSITY 

Mr. CAPLIN. Chairwoman Waters, and Ranking Member Capito, 

I am honored that you invited me to this hearing. The Federal 

Housing Authority, which has for so long done wonderful work to 

support housing affordability, is currently being placed at risk. 

The limitations of FHA data infrastructure, which are of long 

standing, have in the current environment raised risk to an undesirable and perhaps unsustainable level. Therefore, with all due respect, I cannot agree with Commissioner Stevens’ view that it 

would take a catastrophic fall in house prices for FHA to require 

a taxpayer-funded bailout. 

Recent research indicates that the actuarial review on which the 

Commissioner relied in making his assessment understates FHA 

risk, while we do not have access to the data needed to gauge the 

full extent of this understatement. While we are here to discuss 

proposed FHA reforms, I am here to caution you that the impact 

of these reforms on a mutual mortgage insurance fund is impossible to assess. 

The problems in the actuarial review first came to my attention 

when Joseph Tracy, who is vice president and senior advisor to the 

president of the Federal Reserve Bank of New York, noticed that 

FHA prepayment behavior changed radically in 2009. Many mortgages that were significantly underwater suddenly started to prepay at an unprecedented rate. It is as if a group of particularly sick 

patients at a hospital suddenly appeared cured. 

As is so often the case, if it seems too good to be true, it is. Joe 

and I were able to discover the cause of this apparent miracle cure, 

which turns out to be poor recordkeeping when one FHA mortgage 

is streamline refinanced into another. 

To use the hospital analogy, very sick patients were moved to a 

new ward for treatment, yet were recorded as having been cured 

and discharged from the hospital. They were then logged into the 

26 

new ward as if they were relatively healthy new patients without 

new intake measurements and without reference to their prior history. 

The more this hospital moved patients between wards, the higher its apparent success rate. Unfortunately, FHA did the equivalent 

in its recordkeeping, as a result, overestimating its success rate. 

The actuarial review has other shortcomings detailed in our joint 

research. For example, it analyzes only final claims to the FHA’s 

mutual mortgage insurance fund, and ignores delinquency rates. It 

also ignores mortgage modifications, which are increasingly prevalent, costly, and of unknown efficacy. This is like tracking a disease 

by monitoring mortality rates while ignoring information on rates 

of initial infection, hospitalization, and post-intervention outcomes. 

It is hardly surprising, then, that the most recent actuarial review began by listing reasons that the prior review had underestimated losses. There is every reason to expect this pattern to recur. 

Three proposals by way of conclusion. 

One: FHA must immediately update its risk assessment and its 

risk assessment methodology. Until this is done, it will be impossible to assess the impact of FHA reform proposals on FHA risk. 

Two: FHA appears unable at this stage to assess the quality of 

its actuarial review. It must open its books to outside analyses to 

upgrade its risk assessment. 

Three: Some 12 years ago, Joe Tracy and I helped co-author a 

book called, ‘‘Housing Partnerships: A New Approach to a Market 

at a Crossroads.’’ We proposed introducing equity capital into the 

real estate finance equation to encourage risk-sharing. 

Unfortunately, the opposite path was taken, and recent investigations in housing finance instead acted to increase leverage and 

to amplify risk. It is time to go back to the fork in the road. 

Dating back to the Great Depression, the U.S. Federal Government has a positive track record of encouraging innovation in housing finance. Now is the perfect time to reinvigorate that tradition 

by ceding development of equity finance as a far safer method of 

raising housing affordability. 

[The prepared statement of Professor Caplin can be found on 

page 70 of the appendix.] 

Chairwoman WATERS. Thank you very much. 

Mr. Courson? 

STATEMENT OF JOHN A. COURSON, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, MORTGAGE BANKERS ASSOCIATION 

Mr. COURSON. Thank you very much, Madam Chairwoman, and 

Ranking Member Capito. I appear before you today not only as the 

president and CEO of the Mortgage Bankers Association, but also 

as a former chair of MBA and an FHA lender for over 40 years. 

MBA is pleased to see the attention that the Financial Services 

Committee, and this subcommittee in particular, continues to play 

to the Federal Housing Administration, its programs, and its finances. 

Today, FHA finds itself at a critical crossroads. Last November’s 

actuarial report was a wakeup call to us all, and it highlighted the 

very real threats to FHA’s continued solvency. 

27 

All of us here today support FHA and the important role it plays 

in promoting homeownership. However, that role could be greatly 

diminished, even disappear, if we don’t get FHA’s fiscal house in 

order. 

HUD Secretary Donovan and FHA Commissioner Stevens should 

be commended for the proactive steps they have taken to protect 

the mutual mortgage insurance fund. They have made improvements to FHA’s appraisal procedures, its streamlined refinance 

program, the process for approving lenders, and they have kept in 

place the prior Administration’s ban on seller-funded downpayment 

assistance. 

More recently, the Obama Administration put forward a package 

of reforms, some of which are being implemented administratively 

while others require legislative action. I would like to comment on 

these changes from the perspective of MBA’s very diverse membership. 

First, MBA supports HUD’s proposal to increase the cap on the 

annual mortgage insurance premium for FHA’s single-family program. Raising premiums is never desirable, but if done prudently 

and if coupled with decreases in the up-front MIP, this step has the 

potential to strengthen FHA’s books while actually lowering closing 

costs for many borrowers. 

HUD also proposes to expand and extend indemnification requirements for all FHA salary lenders. The initial reaction from 

our members has been largely positive, but we would also urge 

great care in how this change is implemented. 

Lenders take indemnification very seriously. If lenders fear unreasonable standards or penalties, they could become overly cautious. The details of any proposal in this area will be critical, and 

we urge the subcommittee to move carefully to ensure that responsible lenders are not discouraged from participating in the FHA 

program. 

The third legislative change sought by the Administration would 

give FHA authority to suspend a lender nationwide on the basis of 

the performance of one of its regional branches. We all support 

rooting out fraudulent lenders. They hurt borrowers, put the MMI 

fund at risk, and they are a stain on our entire industry. 

At the same time, suspending a lender is a very serious action 

and should be undertaken cautiously and only when justified. MBA 

urges this subcommittee to ensure that this policy allows lenders 

ample opportunity to remediate any problems within a field office 

before receiving a nationwide sanction. These policy changes should 

be clear, transparent, and apply to all lenders. 

I want also to comment briefly on some of the non-legislative 

changes proposed by FHA. MBA supports increasing the downpayment to 10 percent for FHA’s riskiest loans, loans where a borrower has a credit score below 580. However, we would caution policymakers to resist imposing an across-the-board increase in the 

FHA downpayment, as this would have a chilling effect on the ability of FHA to meet the credit needs of the very borrowers it is intended to serve. 

MBA is also concerned about the 50 percent reduction in the 

maximum seller concessions, which are typically used to cover closing costs. This change will primarily impact low- to moderate-inVerDate Nov 24 2008 17:27 Jul 15, 2010 Jkt 056774 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 K:\DOCS\56774.TXT TERRIE
28 

come first-time and minority home buyers, the very populations 

FHA is designed to serve. 

One step FHA has yet to take, but should take, is to examine its 

total scorecard underwriting system. Such an evaluation should review the thoroughness of the scorecard’s borrower risk assessment 

capabilities. 

Finally, I can’t stress enough the importance of ensuring that 

FHA receives adequate funding for upgrading its antiquated technology and hiring additional staff for both its single-family and 

multi-family programs. The House has already passed H.R. 3146, 

the 21st Century FHA Housing Act. And with appropriation season 

just around the corner, we need to redouble our efforts to make 

sure FHA gets the needed funding appropriated. 

Madam Chairwoman, Ranking Member Capito, there is no sugarcoating the unsafe position in which FHA finds itself today. We 

simply must take the strong and necessary steps to protect its vital 

programs, the MMI fund and, ultimately, the taxpayers who stand 

behind it. 

MBA stands ready to work with you, Secretary Donovan, and 

Commissioner Stevens in this important endeavor. Thank you. 

[The prepared statement of Mr. Courson can be found on page 

78 of the appendix.] 

Chairwoman WATERS. Thank you very much. 

Mr. McMillan? 

STATEMENT OF CHARLES McMILLAN, CIPS, GRI, IMMEDIATE 

PAST PRESIDENT, NATIONAL ASSOCIATION OF REALTORS 

Mr. MCMILLAN. Thank you, Madam Chairwoman. 

Chairwoman WATERS. I am sorry, I pronounced your name incorrectly. How do you pronounce your name again? 

Mr. MCMILLAN. My name? 

Chairwoman WATERS. Yes. 

Mr. MCMILLAN. ‘‘McMillan.’’ 

Chairwoman WATERS. Oh, okay. Thank you. 

Mr. MCMILLAN. You pronounced it correctly. 

Chairwoman WATERS. Thank you. 

Mr. MCMILLAN. And thank you, Madam Chairwoman, Ranking 

Member Capito, and members of the subcommittee. I am Charles 

McMillan, the immediate past president of the National Association of Realtors. I thank you for your invitation to give testimony 

today. 

I have been a Realtor for more than 25 years, and am director 

of Realtor relations and broker of record for Coldwell Banker Residential Brokerage in Dallas/Fort Worth. I am here to testify on behalf of 1.2 million members of the National Association of Realtors 

on the importance of the Federal Housing Administration mortgage 

insurance program. 

Since it was created in 1934, FHA has provided more than 37 

million American homeowners with safe, stable financing in all 

markets. And while the program is experiencing shortfalls in its excess reserves due to our economic crisis, FHA remains financially 

strong, in our opinion, and is critical to our economic recovery. 

In 2009, FHA insured nearly 30 percent of the single-family 

mortgage market. In 2009, more than 50 percent of first-time buyVerDate Nov 24 2008 17:27 Jul 15, 2010 Jkt 056774 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 K:\DOCS\56774.TXT TERRIE
29 

ers used FHA. And during the same time, approximately 835,000 

borrowers refinanced into lower interest rate FHA-insured loans, 

saving an estimated $1.3 billion. 

Historically, FHA’s market share has hovered between 10 and 15 

percent of the market. When the private market is strong enough 

to return, we welcome a reduction in FHA’s market share. However, in the meantime, we support FHA’s efforts to fill the gap that 

private lenders have left. 

We have testified previously about the reasons that the FHA 

audit showed they had fallen below the 2 percent capitalization ration, and I won’t repeat that information except to say that we believe FHA has continued to require prudent understanding, and 

has sufficient controls against risk. Today, I will focus my remarks 

on FHA’s new initiatives and what Congress can do to help 

strengthen this important program. 

First, FHA has increased the up-front mortgage insurance premium from 1.75 percent to 2.25 percent. Home buyers are already 

facing increased fees from appraisal and other closing services. Increasing the up-front premium for FHA loans just adds to the problem. 

We support legislation to reasonably increase the annual premium in order to replace FHA’s capital reserves. However, we believe FHA should then decrease the up-front premium to help borrowers at the closing table. 

Second, we understand that FHA intends to propose a rule to decrease seller concessions to 3 percent. In States where closing costs 

are high, like my own State of Texas, seller concessions are often 

higher than 3 percent. 

Such concessions help many borrowers with closing costs, allowing them to purchase a home without depleting all of their savings, 

and, I might add, allow many borrowers the first and almost only 

opportunity to get one foot on the bottom rung of the housing 

homeownership ladder. Again, we are concerned that such a decrease in concessions could put homeownership out of reach for 

many buyers. 

Third, FHA has proposed that borrowers with a credit score 

below 580 be required to have at least a 10 percent downpayment. 

NAR does not believe FHA should make loans to borrowers who 

are unable to repay. However, we are concerned about the disparate impact that credit scores have on underserved buyers. 

Other ways Congress can help strengthen FHA: We strongly support H.R. 2483, the Increasing Homeownership Opportunities Act. 

This bill would make the current loan limits permanent, and we 

urge the committee to quickly consider this. 

Second, we strongly oppose H.R. 3706, the FHA Taxpayer Protection Act of 2009. This bill would increase FHA’s downpayment, and 

again have the aforementioned action. NAR believes in the importance of the FHA mortgage insurance program. With solid underwriting requirements and responsible lending practices, the FHA 

has avoided the brunt of defaults and foreclosures facing the private mortgage lending industry. 

We urge the Administration and Congress to move cautiously before making these changes. I thank you again for the privilege of 

30 

providing this testimony, and of course would be willing to answer 

any questions. 

[The prepared statement of Mr. McMillan can be found on page 

86 of the appendix.] 

Chairwoman WATERS. Thank you very much. 

Mr. John Taylor, I understand that you are having your conference here this week, and I hope everything is going well. 

Mr. TAYLOR. Everything is going very well. 

Chairwoman WATERS. We welcome you on the panel today. 

STATEMENT OF JOHN TAYLOR, PRESIDENT AND CHIEF EXECUTIVE OFFICER, NATIONAL COMMUNITY REINVESTMENT 

COALITION 

Mr. TAYLOR. Thank you, Chairwoman Waters, and thank you, 

Ranking Member Capito, for the opportunity to testify today. My 

name is John Taylor, and I am the president and CEO of the National Community Reinvestment Coalition. 

We are an association of some 600 community organizations 

spread out across America whose primary job is to try to increase 

fair and affordable banking services, banking products, investments, great affordable housing, job development, and overall to 

promote vital communities across the country. 

And I, too, agree with the notion that FHA has been one of the 

Obama Administration’s success stories. I had some doubts about 

Mr. Stevens when I first met him, but any of those have pretty 

much dissipated. 

His work around appraisal procedures, the LMI fund, rooting out 

in particular frauds and scams and really going after some of the 

folks who really give the industry a bad name in general, has been 

pretty impressive. 

And what is ironic is normally I am here at these hearings coming up to criticize FHA for either discriminatory lending practices 

or for what it is not doing in LMI areas. And I have to say, I think 

this Administration and this Commissioner are quite committed to 

trying to be very effective on that score. 

In fact, the truth of the matter is, and anybody who is paying 

attention knows this, if it wasn’t for FHA, we probably wouldn’t 

have any lending going on in America’s low-income communities. 

So hopefully, though, I would love to see—and I think Commissioner Stevens supports this—the day when they begin to reduce 

the size of their portfolio and get the private sector back in there. 

Because while FHA is better than subprime, they are not as good 

as prime. There is a premium that folks who go through FHA pay. 

It is about 3/4 of a basis point difference. And it is the cost that 

people are going to pay to be part of that program. But nonetheless, I think what they have put in in the way of safeguards 

throughout this program is something that is in fact helping many 

people across the country. 

Let me say that we support FHA’s proposals relating to adjustments to the annual and up-front premiums. We support their combination of FICO scores and downpayment requirements. And I can 

talk about all these in more detail if there is a desire to, but it is 

in my written testimony. 

31 

We support the reduction of allowable seller concessions, and we 

support the discussion draft language of the FHA Reform Act to 

allow HUD to require that all FHA lenders, not only those with 

permission to approve loans without pre-endorsement review, but 

that all lenders reimburse HUD for fraud and misrepresentation. 

In addition, HUD should have additional authority under the 

Credit Watch initiative to shut down lender operations in geographic areas of various sizes, as well as shutting down the entire 

FHA operations of a lender. These proposals, I think, would increase safety and soundness and shore-up the secondary reserves 

of FHA. 

But we also have a couple of recommendations. First, similar to 

my friend Graciela Aponte from La Raza, we think that you need 

to increase the role of the nonprofit counseling agencies. NCRC understands that HUD has the authority to reduce the up-front premium if the borrower receives counseling from a HUD-approved 

counselor. 

HUD, however, does not have the authority to reduce the annual 

premium amounts if a borrower has counseling. NCRC recommends that Congress grant HUD this authority since counseling 

has proven to be effective, and since reductions in premium 

amounts will assist in increasing the affordability of FHA loans for 

those borrowers receiving counseling. 

NCRC also recommends bolstering fair lending enforcement. 

FHA has played an important role in preserving access to credit in 

this difficult economic environment, yet evidence suggests that 

when controlling for lender, borrower, the neighborhood characteristics, communities of color received a disproportionate amount of 

FHA loans. And as I said, those are simply just more expensive 

than the prime market. 

Increasing the fair lending enforcement would promote more 

competition among lenders and lower prices by prosecuting redlining by traditional lenders and any targeting of communities by 

FHA lenders. 

HUD and the Federal banking agencies should consider the use 

of match paired testers in its enforcement efforts. The testing could 

be conducted by a nonprofit organization with civil rights enforcement expertise. 

Just a brief comment about HAMP, and that is FHA has a sensible and affordable HAMP program, but NCRC’s counselors report 

that it is not being used by lenders at a meaningful level. HUD and 

Treasury should encourage lender use of FHA HAMP. 

In closing, FHA was created in 1934 to heal the U.S. market during the Great Depression. And for decades, it has turned a profit 

for taxpayers. Today, it is more critical than ever that FHA remain 

a strong gateway for responsible underwritten credit in communities where they serve. 

Thank you very much for the opportunity. 

[The prepared statement of Mr. Taylor can be found on page 113 

of the appendix.] 

Chairwoman WATERS. You are welcome. 

Mr. Mark Alston. 

32 

STATEMENT OF MARK ALSTON, FIRST VICE PRESIDENT, CONSOLIDATED BOARD OF REALTISTS, ON BEHALF OF THE NATIONAL ASSOCIATION OF REAL ESTATE BROKERS 

Mr. ALSTON. Thank you, Chairwoman Waters, and Ranking 

Member Capito. My name is Mark Alston. This testimony is to 

present the National Association of Real Estate Brokers’ position 

with regard to the proposed changes. 

My testimony is going to be presented from the loan originator, 

the point of sale originator, mortgage professional, and consumer 

point of view. My background has always been in residential real 

estate, mostly in what has been considered underserved neighborhoods. I have over 22 years of experience. 

The first change we would like to address is the downpayment 

and FICO changes. It is our position that these changes will help 

create sustainable homeownership. A 580 FICO score falls well 

below the threshold that most of the lenders that we deal with will 

approve. For most lenders that we deal with, it is 620 to 640. A 

580 score is a good threshold for responsible homeownership; 500 

to 579, with 10 percent down, that offsets the risk. I don’t know 

anybody who will approve it, but we support these changes if it is 

there. 

What is concerning to us are today’s tendencies for these guidelines not to be administered and designed as designed by funding 

institutions. Almost unanimously, institutions impose stricter underwriting overlays that exceed FHA guidelines, and exclude families for whom these programs were designed. 

With regard to the next change, the increase in the annual mortgage insurance premiums, we have serious concerns. This change— 

keeping in mind the requirement for FHA to maintain a 2 percent 

reserve, and we want to be mindful of the decisions that are made 

and their impact at the consumer level. We are not sure that what 

may need to be addressed is the amount of the reserve or how it 

is calculated. 

I was instrumental in the design and implementation of a Fannie 

Mae pilot program designed to reduce the disparity between minority ownership and majority ownership in 2001. At the time, majority ownership was around 78 percent; minority ownership was 

around 44 to 48 percent. 

One of the principal players in this program, this pilot program 

with Fannie Mae, were the mortgage insurance companies, the 

PMI companies. What ended a great program was when they 

raised their annual MMI or PMI. 

When it went to 1.5 and higher, it priced people out of the market and opened up the door for the subprime market. It became 

cheaper to go 80/20, and so a lot of people went that way. 

FHA is expensive. I have heard it said that FHA wants to be in 

a more competitive position with the private companies. The private companies have the monthly insurance. They don’t have the 

up-front as well as the monthly insurance. 

When you have someone—I have sat with clients. You are trying 

to explain to them what their payment is going to be. You have a 

$200,000 sale. They put $7,000 down. They have a $193,000 balance, or so they think. With FHA, their balance is actually going 

to be closer to $198,000. It is going to be $4,500 more for mortgage 

33 

insurance. Then you go through the payment, and you have another mortgage insurance premium. They are paying twice. FHA is 

just really expensive at the consumer level. In increasing the annual fee from .55 today, on a $250,000 house, that amount would be $110.57. If they raise it to .85 percent, the 

amount of the monthly payment for mortgage insurance will go to 

$179.80. They go to 1.55 percent, it goes to $311.61, or $201 more 

than the .55 amount. 

One of the hardest things we do in our area is to qualify borrowers. Our ratios are already high. We are not operating at the 

29 over 41 percent guidelines. Our housing load is more like 45, 46, 

47 percent to get people in, even though prices have dropped by 

half. Our average price was 580; now it is 250, 260. It is still tough 

for people to qualify. 

In addition to FHA, the GSEs have been the largest source of 

mortgage capital for minority home buyers in the country. While 

Fannie Mae and Freddie Mac have faced significant losses in recent years and have required a significant infusion of taxpayer dollars, these institutions’ critical role for minority home buyers cannot be underestimated. 

However, in order to keep homeownership affordable, we urge 

Fannie Mae to rescind their adverse market delivery charge, as 

well as the series of loan level price adjustments; and Freddie Mac 

to rescind their post-settlement delivery fees, as well as market 

condition and indication score loan-to-value pricing adjustments. 

The former fee— 

Chairwoman WATERS. Could you wrap it up, please? 

Mr. ALSTON. Yes. We at NAREB are extremely concerned by any 

change that will significantly impact the cost of homeownership, 

while at the same time we recognize the importance of having FHA 

to serve our home buying community. We appreciate the opportunity. 

[The prepared statement of Mr. Alston can be found on page 40 

of the appendix.] 

Chairwoman WATERS. Thank you very much. 

I would like to share with this panel that I am very appreciative 

for your testimony here today. What I am gleaning from your testimony is that everybody would like to have a sound and stable FHA 

performing in the way that it was intended to perform, and making 

opportunities available for low- to moderate-income home buyers. 

Everybody agrees on that. 

Some of you agree with all of the changes that are proposed, 

some agree with some of the changes that have been proposed, and 

some have additional advice about what should be done to make 

all of this work. 

I am very appreciative that the Secretary appears to be open, 

and it is important for us to get our information in during the comment period so that we can help to guide FHA in its attempt to 

comply with the law, to be safe and sound, and to have the capital 

requirements that are mandated by law. 

I want to ask just a few questions. One is on the requirements 

for the lenders. I heard some discussion about that today, that the 

requirements for capital for lenders is too low, that it should be increased. But it appears that the increase is too much. 

34 

Who would like to respond to that? Yes, sir? 

Mr. COURSON. I would be more than happy to respond on behalf 

of the Mortgage Bankers Association. Obviously, we have put together a task force, and our membership is very diverse. We have 

really from the largest of the large financial institutions to the very 

smallest, as the Congressman was saying earlier, the very small 

local mortgage originators. 

And through this group and a lot of discussion, we came out and 

we do support the increase of the net worth to $2.5 million, but— 

and we have commented back to the Department—that we feel like 

there needs to be an extended period of time for lenders and mortgagees to be able to increase that net worth. 

Our comment was that over—and our analysis by this diverse 

group was that over a period of 5 years, even the small members 

would be able to grow into that $2.5 million. And the reality is, 

Madam Chairwoman, that today, with the markets, without those 

kinds of net worth, those lenders are not going to be able to get 

warehouse lines or financing to fund loans, in any event. 

But we are asking and commented that we would like a longer 

period of up to 5 years to earn their way into the $2.5 million. 

Chairwoman WATERS. I appreciate that. I must admit I am a little bit worried about this. I know that many of these small loan 

initiators are much smaller than $2.5 million. I suppose there is 

some amount that is too small. 

But to jump from, what is it now, $250,000? What is it now? 

What are— 

Mr. COURSON. Currently, to be a mortgagee, it is $250,000. To 

be able—a direct endorsement and underwrite FHA loans, it is a 

million dollars. 

Chairwoman WATERS. Okay. To jump to $2.5 million. 

Mr. Alston, how does that play down in southern California? 

Mr. ALSTON. For our neighborhood, for my neighborhood, it is 

tough. There are a couple of proposals on the table. One is to eliminate the mini, which allows brokers to—where HUD approves brokers, allow them to operate as Fannie Mae and Freddie Mac with 

lenders. 

If you increase that capital requirement, you get rid of a lot of 

the small players. We don’t have the capital to qualify. And so we’ll 

have to just be brokers, small warehouse lines or being direct lenders and being able to open that way. We won’t be able to do it. 

Chairwoman WATERS. Ms. Aponte, how would this impact the 

constituency that you represent? 

Ms. APONTE. Well, what we are hearing from our counselors specifically, the issues that they are facing, is mostly the efficiency in 

FHA underwriting. They are trying to purchase REO properties. 

They are trying to purchase short sales. They are taking more and 

more time to access credit for those products. 

Chairwoman WATERS. What about the capital requirements for 

loan initiators? 

Ms. APONTE. I would have to get back to you on that. I am not 

sure. 

Chairwoman WATERS. Anybody else on this issue? Yes, Mr. Taylor? 

35 

Mr. TAYLOR. You know, in this day and age of everybody has to 

have skin in the game, I think they should as well. And particularly where we have seen this proliferation of scams and fraud, if 

you go after somebody and they have absolutely no net worth, they 

don’t have value whatsoever, the government cannot recoup in the 

event that they have created costs and created harm. 

So I think it is important to have some level of skin in the game. 

What that would be, you could probably debate that for a while. 

But I think that it has to be significant enough for them to be 

something other than, you know, a fly-by-night where you can just 

print up some papers, call yourself a broker, get a license as easy 

as you get—brokers are not going to like this—a membership at 

the Y, and then start doing FHA loans. 

I think we need to have a little bit more professionalism and skin 

in the game, so to speak. 

Chairwoman WATERS. So do you think the proposal to spread it 

out over a 5-year period of time would help those who are serious 

about being loan initiators to try and achieve that level of capital 

in order to participate? Anybody? Does that help? We had that suggestion. 

Yes, Mr. McMillan? 

Mr. MCMILLAN. I would offer an opinion, yes, because as I sit 

here and listen to the testimony, there must be balance. As Mr. 

Taylor said, you will have fly-by-night people with minimum capitalization, they get censured, they move away. 

But it also has a tendency to disenfranchise many principled 

lenders that serve underserved neighborhoods, and the 5-year 

grace period would give them an opportunity to come up with it as 

opposed to shutting them out of the system. 

Chairwoman WATERS. All right. Thank you very much. 

Ms. Capito? 

Mrs. CAPITO. I thank all the witnesses. And first of all, I would 

just like to make a statement on one of the recurring issues that 

we have heard in the subcommittee and several of you alluded to 

in your testimony, and that is the lack of technology and computer 

expertise at FHA and at HUD in general. 

In this day and age, that should not be a reason that we are not 

delivering the product, getting the information, or being able to 

work expediently. And we have worked together to try to make 

sure that FHA has the dollars and the manpower to be able to 

move forward, and HUD at the same time. So we will keep trying 

to work on that. 

Mr. Caplin, in your testimony, you basically were raising some 

major red flags as to the actuarial review of FHA, some of the data 

points that have been brought forward. Now, you know that FHA— 

and he was here earlier today with the administrators—hired a 

risk management officer. 

I am wondering if the studies that you did were before they 

have—no, it was after the risk management officer has been—could 

you speak to that in terms of how you think that is going to help 

the process, if at all? 

Mr. CAPLIN. Right now, my image is that they simply are caught 

unawares by the changes in the marketplace. So what happened is 

36 

there was a major switch in termination behavior of the loans. 

They didn’t catch it the first time around. 

That is—in a way, I don’t know where to hand responsibility. It 

might be IFE. It might be that the people reading from FHA 

should have picked that up. It seems that it is endemic that nobody 

quite has enough data on hand, or enough of it gathered together, 

to be able to answer the questions in the correct way. 

That persists today. Now, I don’t blame those who have just 

come in. 

Mrs. CAPITO. Right. 

Mr. CAPLIN. That is, they really are new. But I do believe that 

the right response is, oh, some problems have been identified. 

These are genuine problems; they need to be rectified. 

In the process of rectifying them, I believe one would uncover 

what the system needs to be for effective risk management in the 

future. And currently, it is just not in place. 

Mrs. CAPITO. Do you think this, in part, is an explanation for the 

difference in the two figures that we were discussing earlier? I 

don’t know if you were here for the first panel, but the two estimating figures, the White House and then the CBO, there is a vast 

difference between what the estimated revenues would be. I mean, 

it is like a $4 billion difference. 

Is that playing into the same scenario that you are speaking 

about? 

Mr. CAPLIN. That is just the beginning; it is much larger than 

that, if you go forward and simulate out with different models. The 

differences are massive. 

Mrs. CAPITO. All right. Thank you. 

Mr. Courson, we have talked a little bit about—and there have 

been some differing opinions on the proposal to go below 579 and 

increase the downpayment to 10 percent. 

Are many of your members currently doing FHA loans with a 

FICO score of 579 and below? 

Mr. COURSON. No, they are not, Congresswoman. And I would 

like to comment on that. We have talked a lot about FICO scores 

today, and the comment has been made that even at 580, there are 

not a lot of loans being made. 

Underwriting—having been in this business for more than 40 

years—is an art. It is not a science. And we keep talking about 

numbers, a 580 or a 620. 

We have said, and we believe, that in addition to FICO score— 

which is an indicator—that what really needs to happen here to 

look at the credit and who is creditworthy is to look at the FHA’s 

automated underwriting system, Total Scorecard, that they came 

out with a number of years ago. 

But I find it interesting that through these hearings, we are not 

talking about looking inside their automated underwriting system 

and looking at what the indicators are in there. That is what lenders are using to make credit judgments. It is not just the FICO. 

There are a lot of factors that make a decision as to whether that 

loan is an appropriate loan to be made. 

I have mentioned this to Commissioner Stevens, and we are 

going to be working with him, hopefully to get inside this underVerDate Nov 24 2008 17:27 Jul 15, 2010 Jkt 056774 PO 00000 Frm 00042 Fmt 6633 Sfmt 6633 K:\DOCS\56774.TXT TERRIE
37 

writing system for a more robust decision as opposed to just a 

FICO-based decision. 

Mrs. CAPITO. Ms. Aponte, I am curious. We have had this in several other hearings, certainly with the foreclosure mitigation, different programs that we have dealt with. Millions and millions, 

probably billions, of dollars going to housing counseling. 

Is your organization one of those nonprofits—and Mr. Taylor, I 

am sure you know many as well—that are getting either the stimulus dollars or other dollars? Can you quantify that for me, how 

much La Raza is presently getting this year for housing counseling? 

Ms. APONTE. Sure. We are one of, I would say, about 15 or so. 

There are national HUD intermediaries. 

Mrs. CAPITO. Right. 

Ms. APONTE. So we do receive funding through HUD. And we 

also through the NFMC program, which is specifically for foreclosure prevention, I believe last year it was $1.3 million, and the 

highest amounts that folks were receiving were $3.5 million. So 

about five other organizations received that amount, and we are at 

about $1.3 million for the last year. 

Mrs. CAPITO. Is the increase in that—do you think it is having 

any effect in terms of not the origination, maybe, so much, but 

keeping people in their homes? Are you finding some success with 

the housing counseling, since we are putting a lot of dollars into 

it? 

Ms. APONTE. Yes. There are a lot of other factors that go into 

foreclosure prevention. So just because the MHA numbers are 

showing that loan modifications are difficult, there are a lot of trial 

period modifications. Counselors are able to help families with different options for foreclosure prevention. 

There are short sales that—some people don’t qualify for a loan 

modification. They need help to get a short sale. Some people will 

need to get a deed in lieu. Some people will go into foreclosure, but 

the counseling agency is there to help them—there are support 

groups that are developed through these community-based organizations—and to help them rebuild their credit and get back on 

their feet. 

Mrs. CAPITO. Well, thank you. Just in closing, I would like to 

thank everybody, too. I think we have gotten a lot of good perspectives. And I would like to encourage you all to take a look at the 

bill I just dropped yesterday, and any input that you would care 

to give me and all of us, I would certainly appreciate it. 

I think certainly the safety and soundness of FHA is extremely 

critical to many, many people across this country. And to you all 

and your businesses, certainly, but these are families in homes 

with futures. So thank you very much. 

Chairwoman WATERS. I also would like to thank all of you for 

your participation here today. I have also learned an awful lot. 

I really would like to encourage you to participate in the comment period, and to continue to talk with us. Call us. Meet with 

us. Meet with our staffs in our offices to further support your position as it relates to the changes that are being proposed by FHA. 

And I would like to talk with some of you about the appraisal 

system and some complaints that I have had about consolidation 

38 

in that area and a few other things. So we are going to rely on you 

and your expertise to help us do it right. Thank you all very much. 

The Chair notes again that some members may have additional 

questions. Yes, without objection, we have a communication from 

the Manufactured Housing Association for Regulatory Reform to be 

entered into the record. 

Those are the only written statements that we have. I thank you, 

and this hearing is adjourned. 

[Whereupon, at 4:04 p.m., the hearing was adjourned.] 

(39) 

A P P E N D I X 

March 11, 2010 

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