Overhauling 'Dark Ages' FHA a must for housing reform, HUD says

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The Department of Housing and Urban Development believes that a “critical element” of housing finance reform is the need to modernize the risk management and technology platforms at the Federal Housing Administration, said Adolfo Marzol, a top HUD official.

“The difference now between FHA and, say, Fannie Mae or Freddie Mac are truly stark,” Marzol, who is the senior adviser to HUD Secretary Ben Carson, said Monday at an event hosted by the American Action Forum. “We really are in the Dark Ages.”

FHA relies on a COBOL (common business-oriented language) computer operating system that was invented in 1959, which is mainframe-based. Increasingly, more government agencies are moving to a cloud-based system, which offers more security and allows a single operating system to move seamlessly between computers.

Marzol, who formerly worked in the private sector, said the FHA’s system today is behind the system Fannie Mae used 12 to 15 years ago.

“Our systems aren’t very reliable,” he said. “We have outages and they’re expensive to maintain, so it’s like a double whammy of the stuff is old and isn’t working very well, and yet maintaining old software on old technology that’s on mainframes is expensive, and the brainpower that knows how to do all that is slowly winding down.”

If the operating system were to fail, FHA single-family and multifamily loans would be unavailable until a replacement system was configured.

HUD has been lobbying for years to receive funding to update its computer systems, but Congress has failed to provide it, though Marzol said he is “heartened” by the growing support for modernization.

Brian Montgomery, newly confirmed by the Senate as FHA commissioner, also feels “very strongly” about an updated system, according to Marzol.

“Whether as you think about the future you would put relatively more importance on getting borrowers into homes and having access to credit through FHA, or whether you would be relatively more concerned about the risks the ... program might present the taxpayers … the case for the modernization of FHA I think is compelling on both sides of that,” he said.

In addition to technology modernization, there is an ongoing effort at HUD to improve access to affordable housing, Marzol said.

Both the Trump administration and Carson are interested in measures the department can take to “loosen up the supply of housing.”

“I think if we don’t get some additional supply response, we’re going to continue to be in a situation in which the market is tight and home prices are expensive and renting is not super affordable either,” Marzol said.

The department is also identifying risk trends in the marketplace, one of which concerns first-time homebuyers.

“Interest rates have risen some, and so first-time homebuyers, to try and get into the marketplace, I think are being put in a position of having to stretch a bit,” Marzol said.

Additionally, he said, such borrowers don’t have the benefit of equity buildup.

“We want to really make sure that our credit box at FHA is set in a way that fulfills our mission, but that we do it responsibly [and] we do it sustainably so that we have successful homeownership and we’re positioning people for success and for wealth creation over time in that home,” he said.

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Housing finance reform GSE reform GSEs FHA Fannie Mae Freddie Mac HUD