While there is reason for optimism about the future of the housing market, the mortgage industry needs to seize the opportunity presented by the housing crisis to "reinvent our industry," said Federal Housing Administration Commissioner David Stevens, during a speech at the New England Mortgage Expo at MGM Grand at Foxwoods.
"Until we get to the point that we care about every borrower …the way we care about family, until we get to that point collectively as an industry, we’re going to have a problem," he said.
Stevens acknowledged industry discontent with the non-stop barrage of new regulation firms are facing, and called upon the industry to step forward and embrace accountability and transparency, saying that the mortgage industry still had work to do to restore its reputation in the larger world, particularly with younger "echo boomers."
The recession and housing crash have scared recent graduates and young professionals off from a desire to purchase, Steven said, pointing to his own daughter as one who thinks they’ll want to rent forever. "Collectively, we’ve got to talk a lot more about sustainable homeownership," in order to entice the echo boom generation into homeownership.
Stevens said he’s optimistic about the continued recovery in the broader economy and in the housing sector over the coming year, pointing to the decline in recent months in new borrowers entering into delinquency.
He expressed strong confidence that some private lenders and investors would, over the coming year, relax their lending standards and return to lending to people with FICO scores as low as 580, helping to take some of the burden off the FHA.
The agency has taken up an increasingly large share of the residential purchase mortgage market over the past several years as sub-prime lending collapsed and other lenders tightened their standards, a development that Stevens cited as a concern.
"Today we’re way too big in the market," he said, saying he’d estimate the agency has almost a 50 percent share in purchase transactions. "I would much prefer to see private capital back in," he said.
Questioned about the agency’s changes to its mortgage premiums, Stevens defended his decision to raise ongoing premiums for mortgage insurance for FHA loans, saying that the move was part of several significant changes he had made to ensure the agency maintained its congressionally mandated capitalization ratio. Stevens said he had preferred to raise the ongoing premiums, rather than the upfront premiums, since the upfront premium is often capitalized into the loan, raising the risk that borrowers will rapidly enter into negative equity in the event of even a slight decline in home prices.
Stevens also said the FHA has changed its quality control audit procedure, and will be reviewing closing documents for unusual fees and charges in an effort to make sure that investors "move responsibly back down the curve" into more risky loans without over-charging borrowers. He also said that while lenders are being monitored on a national scale to keep track of risky lending practices, the agency does review lenders against regional standards before taking action, in order to make sure that firms in economically disadvantaged regions aren’t punished simply for making credit available to their local borrower pool.
