As we fast approach 2018, we are still no closer to defining the role of government-backed mortgage insurance provided by the Federal Housing Administration (FHA). Housing reform that reduces taxpayer risk is a hot topic; however, we seldom include the FHA’s role in the discussion.

MGIC CEO and President, Pat Sinks, has repeatedly called for a discussion on Federal Housing Administration’s role: twice right here on MGIC Connects – once in 2016 and once in 2017.

The Federal Housing Administration’s role is still not defined.

Recently, Brian Montgomery’s nomination as Federal Housing Administration (FHA) Commissioner was approved by the Senate Banking Committee. Assuming he’s confirmed as the FHA Commissioner, a post he held from 2005-2009, I am sure Mr. Montgomery will have no shortage of advice on what needs to be done with the FHA. Much of it no doubt will revolve around FHA premium rates.

But a recent paper published by the Terner Center for Housing Innovation at the University California, Berkeley, holds some advice that caught my attention. One of the paper’s authors is Carol Galante, the Faculty Director of the Terner Center and also a former FHA Commissioner. She served from 2011-2014. In Mission Critical: Retooling FHA to Meet America’s Housing Needs, Ms. Galante and her co-author, Nathan Shultz, echo the call to define FHA’s role. It opens:

“Despite its importance to housing finance in America, the subject of Federal Housing Administration (FHA) and its future has largely been excluded from current debates over housing finance reform. This is a critical mistake.”

Like Pat Sinks’ blogs, the paper essentially asks, before any debate on FHA premiums, we need to determine, first and foremost, what role we as a country want the FHA to play in the housing market.

Ms. Galante’s paper makes the case that the FHA must focus its activities on “… providing access to affordable mortgage credit for those households and communities that are underserved by the private mortgage finance market.”

Most of us probably would agree this is the Federal Housing Administration’s role – to serve underserved markets in the housing industry. And the FHA does it well. The critical problem is that “underserved markets” is not defined.

Ms. Galante’s paper goes on to propose various means to accomplish the goal, including:

  • Re-examining the methodology that determines loan limits
  • Holding those limits to 100% of the area median price rather than 115%, and
  • Limiting FHA lending activity to purchases and refinancing existing FHA mortgages

In addition to Ms. Galante’s suggestions, we would add that including an income limit should be part of the discussion as nearly half of FHA borrowers earned more than the area median income (AMI).

Both Fannie Mae and Freddie Mac, overseen by the Federal Housing Finance Agency, use income limits to ensure their programs are utilized by underserved borrowers. Is it too much to ask that the FHA use similar criteria to protect taxpayers and to ensure it’s focused more precisely on the potentially underserved in our communities?

To be perfectly clear, neither I, nor MGIC, is endorsing every idea brought forward by Ms. Galante and Mr. Shultz. However, there are action items that many of us could agree upon and implement in a much shorter duration. Imposing loan-level limits to 100% of an area median price or installing AMI criteria similar to what Fannie and Freddie use on their affordable programs, should be relatively easy steps that could take place quickly.

Before exploring fundamental FHA reforms or debating premium rate reduction, let’s first finally define its true role.

Sal Miosi

Sal Miosi - MGIC EVP, Business Strategy and Operations

Sal Miosi joined MGIC in 1988 and is currently the Executive Vice President of Business Strategy and Operations. His responsibilities include leading MGIC’s policy acquisition and underwriting operations, policy servicing, marketing, product development and strategic planning.

During his career at MGIC, he has led several business and technology initiatives, including the creation and management of Prior to his current role, he served as Vice President of Marketing.

Sal holds an MBA from Marquette University and a bachelor's degree from UW-Milwaukee.

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