Carol Galante came to Washington in early 2009 to run the Federal Housing Administration's multifamily program, but two short years later she's in charge of the entire agency, managing everything from single-unit insurance to reverse lending.
With the departure of FHA chief David Stevens in April, Housing and Urban Development secretary Shaun Donovan turned to Galante to serve as acting commissioner.
Since July, she has had the added responsibility of overseeing the FHA single-family program. She also is working on Obama administration initiatives to expedite sales of foreclosed properties, and expand refinancing programs for underwater borrowers.
A few short months after replacing Stevens (now the MBA president) she decided the agency's troubled reverse mortgage program needed an overhaul. The Home Equity Conversion Mortgage program has been underperforming for several years, the victim of increasing technical defaults as seniors find it harder to meet their obligations of paying property taxes and homeowners insurance.
Although FHA and reverse mortgage lenders have been trying to address these problems, Galante maintains it's time to take a serious look at the whole 20-year old program.
“Increasing the premiums and creating the HECM Saver have been helpful,” she said. “We want to take a deeper look at additional things we should be doing, including upfront financial assessments and giving lenders more guidance on best practices.” FHA also will be reviewing servicing standards for HECMs.
FHA should continue to be an important source of reverse mortgages. “But that doesn't mean it doesn't need changes,” she said in the interview with National Mortgage News.
The acting commissioner—who came to the agency from Bridge Housing Corp., a well-known developer of affordable housing in the San Francisco area—also has been thrust into an initiative that would sell Fannie Mae, Freddie Mac and FHA foreclosed single-family properties in bulk to investors that will rent the houses.
The GSE regulator and FHA are working with Treasury officials on reviewing nearly 4,000 responses to a joint “request for proposals” on REO sales. “I think we got a really great response,” that yielded “at least 50 serious ideas,” she said.
Galante added that it may take several months to review all the proposals, noting that the agencies may decide to issue a new round of public comments. “It's too early to tell which strategy we will use and what the process will be,” said the FHA chief.
HUD is also working with the FHFA on designing a streamline refinancing program for underwater borrowers with Fannie and Freddie loans. “They are still working on all the details and what that might look like,” she said.
FHA has a streamline refinancing program that makes it easy and less expensive for existing government borrowers to refinance at lower mortgage rates. Over the past two and half years, 700,000 FHA borrowers have used the streamline refinance proposal, including underwater customers with LTVs of up to 125%. “There are a lot of folks underwater who are still making their payments,” Galante said.
“If the administration can work with FHFA and the GSEs to have something akin to the FHA streamline program,” she said, “it would allow a lot of people to refinance.”
Like FHA, Fannie and Freddie are already on the hook if the loans go bad. Refinancing can lower that risk of default. The GSEs would be “better off” if their borrowers can take advantage of lower interest rates and stay in their homes, Galante said.
Meanwhile, the FHA single-family program (excluding HECMs) has turned into cash cow as a result of higher insurance premiums and tighter underwriting and program requirements.
The latest FHA single-family report shows that a $200,000 FHA loan is generating nearly $8,000 in annual premiums for the FHA insurance fund. The numbers reflect the incredible performance of FHA loans originated in the past 30 months—thanks to incremental hikes in annual premiums, noted FHA consultant Brian Chappelle of Potomac Partners.
The stellar loan performance may give the acting FHA commissioner some room to pursue one of her priorities—access to credit for new borrowers. “On the single-family side, FHA needs to be an important source of financing for underserved communities, and low- and moderate-income borrowers,” she told NMN.
It's important to manage risk, Galante stressed. At the same time, there needs to be a “balance so that FHA continues to be a good source of financing for the community.”
