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FHA Eyes Risk-Based Premiums to Regain Share

Government is famous for moving at a glacial speed. But not the "New FHA."

Though the first major congressional overhaul of the Federal Housing Administration's mortgage insurance program in a decade has a long way to go in a short time, the agency is already thinking about how to implement the proposed changes, officials said last week at the Mortgage Bankers Association's Government Housing Finance Conference here.

If lawmakers should allow the FHA to switch to risk-based pricing, as proposed in a House bill that is awaiting floor action, the agency would like to create a "little premium calculator" as a simple means of determining what FHA would charge to insure a particular loan, according to Meg Burns, director of FHA's Office of Single-Family Program Development.

The agency also plans to move condominiums into the standard 203(b) program to eliminate the "long, drawn-out" approval process, and to either completely revamp the Title I home improvement loan program or drop it altogether, Ms. Burns told the meeting.

But the question remains whether both the House and Senate, which has yet to hold hearings, can come to an agreement before members end what is expected to be an election-shortened session and go home.

While the MBA has pointed out repeatedly that the clock is ticking, FHA commissioner Brian Montgomery remains optimistic. "We have a real shot at modernization," he told the conference.

Mr. Montgomery said he was "encouraged" and "truly surprised" by bipartisan support in the House, where 61 members have signed on to the bill, which has been cleared by the House Finance Committee. And he said he is "seeing growing enthusiasm in the Senate," which he hopes will hold hearings this month.

Both conventional and subprime lenders have been steadily eating away at FHA's bread-and-butter market, which is low- and moderate-income borrowers in general and first-time buyers in particular, and the agency's market share has dropped from 13% in 1990 to just 3.5% last year, Martha Simmons, of SunTrust Mortgage and vice chair of the MBA's Residential Loan Committee, told the meeting.

"To be truly effective" and once again become a household name, Mr. Montgomery said, "we need the flexibility to offer better products so borrowers can choose the one that suits them best."

And he is hoping the recent IRS revenue ruling that downpayment assistance providers are not nonprofit corporations will give a shot in the arm to efforts to revamp the 74-year-old mortgage insurance program.

Noting that 25%-30% of all FHA's volume is from loans in which the seller "donates" all or part of the downpayment through a third-party entity, the FHA commissioner said he's "not sure what will fill the void" if Congress fails to give the FHA permission to back 100% mortgages.

While the ruling is "not a complete death knell" for downpayment assistance, he said, "it highlights the need" for lawmakers to move forward.

In her presentation, meanwhile, Ms. Burns said the premium calculator envisioned by her department would compute the cost of the insurance premium based on the borrower's credit score, the term of the mortgage and whether it has a fixed or adjustable rate, the loan-to-value ratio, and whether the loan is either a purchase-money mortgage or a refi.

The calculator would be available at FHA Connection, which provides approved lenders direct, secure, online access to the Department of Housing and Urban Development's computer systems, she said, or it could also be downloaded so lenders could incorporate it into their systems.

The calculator might even be made available to consumers on a freestanding website, she said.

The plan for condos is to remove them from a "very onerous, time-consuming" clearance process by allowing lenders to certify condo loans directly based on a streamlined checklist. (c) 2006 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com

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