HUD Seeks Ways to Reverse Declining Fortunes of FHA

In recent years, the Federal Housing Administration has been plagued by high delinquency rates and shrinking loan origination volume, but the FHA's new commissioner hopes to revitalize the government's largest mortgage insurance program.

That's the message Department of Housing and Urban Development officials brought to the Western States Loan Servicing Conference here.

"We've lost a lot of our market, and the department right now is looking for ways to improve," said Leslie Bromer, who leads the servicing team at HUD.

Ms. Bromer said HUD is trying to "think outside the box" in its effort to regain FHA market share and avoid becoming the lender of last resort.

Those efforts to improve the FHA program include efforts that will make it easier for loan servicers to do business with HUD, she said.

Recent initiatives include electronic claims submission and delinquency reporting as well as accelerated claims disposition. The FHA has also replaced paper mortgage insurance certificates with an electronic system so that paper MICs are not required to file a claim.

HUD's loss mitigation program, a result of legislation that is intended to keep more seriously delinquent or defaulted FHA borrowers in their homes, also is designed to improve the program for borrowers as well as lenders. The legislation extended more flexibility to the FHA in dealing with loan defaults.

"It allows us to take a defaulted asset and not require immediate foreclosure on it," she said.

The FHA has also increased incentives for servicers to do loan modifications under its partial claims policy.

But legislation aimed at promoting loss mitigation has a downside for servicers as well, she noted. HUD recently promulgated rules that can impose treble damages on servicers that fail to engage in mandatory loss mitigation efforts on defaulted FHA loans.

The FHA's loss of market share, which some industry participants attribute to more aggressive lending among private sector investors targeted at nonprime and other higher risk borrowers, has had an impact on the Ginnie Mae as well.

Mike Garcia, head of single-family housing at Ginnie Mae, said that volume of outstanding Ginnie Mae securities has declined from $600 billion two years ago to $400 billion today.

"It is dramatically affecting the liquidity of Ginnie Maes outstanding," he said at the conference, which is hosted by the California Mortgage Bankers Association.

As a result, he said Ginnie Mae is also looking at ways to be more competitive in the secondary market, citing competitive pressure from the Federal Home Loan Bank System and other sources.

"We are not a monopoly. We do have competition," he said.

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