Talking FHA with commissioner Montgomery: FHA's top official discusses the need for Congress to enact FHA modernization legislation, the surge in FHASecure refinancings, higher loan limits and the ins and outs of the RESPA proposed rule

Mortgage Banking, June, 2008 by Robert Stowe

All we are saying is that, going forward on the new mortgage, FHA is only insuring 90 percent of [the value of the house] and will be in a first-lien position, as we always are. So, in fact, we are now defining the floor--although there will be people losing money on this; there's no doubt about it. But the way we're coming at it, we think if nothing else, it helps define the floor--but more importantly now, here's a way we can prevent some foreclosures.

Q: Does this help people in places like California?

A: It will, once the loan limits are fully on board and [in] everybody's systems.

Q:Will there be restrictions on borrowers who can take advantage of the expanded FHASecure program?

A: There's a requirement that the borrowers [be currently occupying their home and that they] stay in their home a given period of time--we're still working on that. But all we're saying is that we want to avoid the ripple effect of foreclosure, most importantly for those foreclosures that can be prevented. We think this is the role of the Federal Housing Administration.

Q: How do you expect these loans to perform for FHA?

A: It's a small percentage of our loans, because our traditional loan is 97 percent LTV. But the 90 percent loans [insured by FHA] perform fairly well for us.

Q: There are a lot of people out there, where the house is probably worth just a little bit more than the mortgage now. You can still help them as you have in the past?

A: Yes, absolutely--[no matter whether] they're current or delinquent.

Q: Is there any limit on how much you can do in terms of total volume of business?

A: Well, Congress gives us a loan allocation amount every year. I've been here about three years. And every year it's been around $185 billion, and we've gotten nowhere near it [in our volume of insured loans]. Well, this year we're going to exceed that. That's across all FHA programs. [The loan allocation is] $185 billion this fiscal year. We expect [we will do $235 billion in business by Sept. 30]. When we get to 75 percent of $185 billion, we have to notify Congress.

Q: Not that many years ago, FHA's insurance program was not that secure itself. Having put itself in better financial shape, [is FHA now] in a position to respond to the current needs of borrowers unable to find financing elsewhere due to the collapse of the private-label market and the wholesale retrenchment from subprime lending by portfolio lenders?

A: We're still making improvements. We need [information technology] improvements. We need more personnel. [A large number of employees are reaching retirement age and are expected to retire]; we need to hire about 400 people this year [just to keep up with retirements]. Through no fault of our own, we're a little bit behind on that. But ultimately, we'll get them all hired before the end of the year.

[Getting back to our IT needs,] the average age of our systems here is almost 18 years. Our oldest system is about 25 years. Again, we've told Congress we need systems upgrades beyond the personnel needs. We need brand-new systems, and we often laugh about Fortran [language] programmers. For those of us who took Fortran [classes] 30 years ago, some of our programs still run on a Fortran platform. Yes, we do need some upgrades. GAO [the Government Accountability Office] took us off its high-risk list for the first time last year. Last year's audit--we have an IT annual audit--found no material weaknesses.