Carson open to alternatives to 30-year fixed

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WASHINGTON – Housing and Urban Development Secretary-designate Ben Carson is open to finding alternatives to the 30-year fixed-rate mortgage, but believes there must be some government backstop to the housing market.

Carson, a retired neurosurgeon, made those remarks at his confirmation hearing Thursday in front of the Senate Banking Committee, where he also said he was going to carefully evaluate the Federal Housing Administration’s plan to cut annual premiums.

"I, too, was surprised to see something of this nature dropped on the way out the door," Carson told Sen. Pat Toomey, R-Pa., in response to a question about the premium cut. "If confirmed, I am going to work with the FHA administrator and other financial experts to examine that policy.”

The Department of Housing and Urban Development announced Monday that it was cutting the annual premium by 25 basis points, but it does not take effect until Jan. 27. If Carson is confirmed quickly, he could be in office in enough time to delay or reverse the decision.

During the hearing, Toomey expressed reservations about the premium cut, arguing that the FHA’s mortgage fund had not sufficiently recovered from the financial crisis. He noted that the portfolio of FHA loans had ballooned to $1.2 trillion in 2015 from $245 billion in 2006.

"Do you share my concern that his massive explosive growth in FHA mortgage guarantee business has interfered with a viable private alternative that does not involve taxpayer risk at all?" Toomey asked.

Carson said there are 8.5 million FHA loans. "We have to be concerned when we are talking numbers of that magnitude," he said.

Carson also tackled questions related to the government-sponsored enterprises, where he signaled he would not support a complete privatization of the market. He said there is more room for private insurers in the mortgage market, but a government backstop of some kind is necessary for the secondary market.

"We have to have a mechanism, a backstop of some type," Carson said. Otherwise, investors won’t be "comfortable buying" the loans.

The HUD nominee also testified that it might be possible to have a 30-year mortgage without a government guarantee, but “you can’t do it overnight.”

“It has to be a gradual change,” he said. "I look forward to working with you and other members of this committee to figure out how we can shrink the liability of the taxpayer while still providing security to the individuals who want the loans.”

Overall, Carson appears headed to easy confirmation, with most Republicans and Democrats expressing support for his nomination. Though he has no background in housing, Carson was comfortable with the subject matter and avoided any significant gaffes.

Sen. Elizabeth Warren, D- Mass., was expected to be his toughest inquisitor, but she focused mainly on President-elect Donald Trump’s possible financial conflicts of interest and urged Carson to focus on the need to reduce lead exposure in HUD housing.

"Will you make sure that HUD resources are dedicated to dramatically reducing the number of public housing units where lead is a problem?" she asked.

Carson pledged to work with the senator on the issue, noting there are 310,000 children with lead poisoning. In later testimony, the HUD nominee said he wants to expand HUD's Healthy Homes grant program that addresses lead, asthma and other health and safety concerns.

If confirmed, Carson plans to conduct a listening tour of HUD offices. "I want to hear from people with boots on the ground who are actually administering programs. Who are benefiting from the programs. I want to see what actually works and does not work.”

At the end of the confirmation hearing, it seemed even Carson was surprised it had gone so smoothly. "It was kind of fun," he said.

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