FHA: Go Broke First, Tighten Standards Later

When will those charged with spending taxpayer money treat associated responsibilities with the seriousness they deserve? Indiscriminately and wastefully allocating taxpayer funds is not merely a question of competence but, in my opinion, a question of patriotism.

The Obama administration’s support of our nation’s housing market has been overwhelming.  Taxpayer funds have been directed towards Freddie, Fannie, the FHA (Federal Housing Administration), and a wide number of banks. Although government spending and waste go hand in hand, the American taxpayer deserves so much better.

With the recent news that the FHA insurance fund is depleted, now the FHA decides to tighten standards. Spend money first, ask questions later? Where and when will this madness end? A recent release from the Federal Register/Department of Housing and Urban Development highlights new initiatives by Housing and Urban Development (HUD) which oversees the FHA. The FHA Summary reads as follows:

Through this proposed rule, HUD continues its efforts to streamline, modernize, and strengthen the mortgage insurance functions and responsibilities of FHA, as authorized by provisions contained in the National Housing Act, as amended by the FHA Modernization Act of 2008, and further supported by the Helping Families Save Their Homes Act of 2009. First, FHA proposes to no longer approve loan correspondents as approved participants in FHA programs. Mortgagees would be required to ensure that their loan correspondents meet applicable requirements. The FHA approved mortgagee will, in turn, act as sponsor as it has in the past. However, in using a sponsor/correspondent relationship, the sponsoring mortgagee must agree to assume responsibility for any loan correspondent that works with the mortgagee in the FHA insured loan, and assume liability for the FHA-insured loan underwritten and closed in the name of the FHA-approved mortgagee.

Not every correspondent mortgage broker is a rogue, but why did Uncle Sam effectively guarantee every mortgage that Joe-Blow’s Mortgage Co. originated under the FHA program? Why hadn’t HUD and the FHA implemented this policy from the outset? Where’s the accountability? The FHA Summary continues:

Second, this proposed rule would update the FHA regulations to incorporate criteria specified in the Helping Families Save Their Homes Act of 2009 that precludes certain lending entities from originating an FHA-insured loan, and are designed to ensure that only entities of integrity are involved in the origination of FHA-insured transactions.

What a novel concept. Now HUD and the FHA are willing to acknowledge that they have dealt with entities that lacked integrity previously. Where’s the accountability and competence? The fact that they incorporate this statement as part of a new initiative is embarrassing by its own admission of weak and ineffective prior procedures. I reiterate, where is the accountability and competence?

The FHA Summary concludes:

Third, and consistent with the objective to work with and rely upon responsible mortgagees, FHA proposes to increase the net worth requirement for FHAapproved mortgagees for the purpose of
ensuring that approved mortgagees are sufficiently capitalized.

This statement is a further admission that FHA acknowledges they did business with undercapitalized and higher risk entities. Who bears that risk? That’s right. You and me. Another indication of a lack of accountability and competence.

As much as public officials may want to believe and promote that they are properly guarding taxpayer interests, I view this FHA Summary in the exact opposite light.

Having run the FHA right into the ground, are we truly supposed to believe the government can properly manage health care?

About Larry Doyle 522 Articles

Larry Doyle embarked on his Wall Street career in 1983 as a mortgage-backed securities trader for The First Boston Corporation. He was involved in the growth and development of the secondary mortgage market from its near infancy.

After close to 7 years at First Boston, Larry joined Bear Stearns in early 1990 as a mortgage trader. In 1993, Larry was named a Senior Managing Director at the firm. He left Bear to join Union Bank of Switzerland in late 1996 as Head of Mortgage Trading.

In 1998, after 15 years of trading and precipitated by Swiss Bank’s takeover of UBS, Larry moved from trading to sales as a senior salesperson at Bank of America. His move into sales led him to the role as National Sales Manager for Securitized Products at JP Morgan Chase in 2000. He was integrally involved in developing the department, hiring 40 salespeople, and generating $300 million in sales revenue. He left JP Morgan in 2006.

Throughout his career, Larry eagerly engaged clients and colleagues. He has mentored dozens of junior colleagues, recruited at a number of colleges and universities, and interviewed hundreds. He has also had extensive public speaking experience. Additionally, Larry served as Chair of the Mortgage Trading Committee for the Public Securities Association (PSA) in the mid-90s.

Larry graduated Cum Laude, Phi Beta Kappa in 1983 from the College of the Holy Cross.

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