WASHINGTON The head of the Federal Housing Administration urged senators Wednesday to sharpen their focus on the agency's struggling reverse mortgage program as Congress considers broader reforms to the government mortgage insurer.
FHA Commissioner Carol Galante sounded support for a proposed overhaul of her agency aimed at fixing the insurer's finances following the wave defaults from the crisis, which is authored by the two top leaders on the Senate Banking Committee. But she said swifter congressional action is needed to authorize the FHA to make reforms to its reverse mortgage platform. If lawmakers fail to act before the end of the fiscal year, Galante said, the agency could be forced to make drastic cuts affecting all reverse mortgage borrowers.
"Time is of the essence here," Galante said during a hearing before the Banking Committee.
The hearing was the committee's first opportunity to discuss the broader FHA bill introduced by Chairman Tim Johnson, D-S.D., and ranking Republican Mike Crapo of Idaho. The wide-ranging plan, unveiled earlier this month, would raise the FHA's mandated capital reserve ratio to 3%, require annual minimum increases in premiums paid to the agency and gives the FHA more authority to hold lenders accountable for faulty loans. (The committee is planning to vote on the bill next week, a panel spokesman said.)
But even though the bill includes a proposed fix for the reverse mortgage program, Galante suggested lawmakers should target their efforts toward reforming that program first and then focus on the broader reforms. She urged enactment of a House bill passed earlier this year, which was introduced by Rep. Denny Heck, D-Wash., which would authorize the agency to more precisely determine the amount of FHA backing provided to each reverse mortgage borrower. Up to now, Galante said, the program has been too lenient, approving loans in some cases that are larger than necessary.
"If we can't make those nuanced changes, we're just going to have to say: the entire amount that you can take out on this reverse mortgage is going to be just lowered substantially for everybody across the board, which is going to make it a less effective program and make it much less useful for far fewer people," Galante said.
While it is unclear how quickly the Senate will act either on a broader overhaul of the FHA or narrower reforms, members of the panel lauded Johnson and Crapo's effort, which accompanies an array of other attempts on Capitol Hill to get the ball rolling on modernizing the nation's housing finance system.
The bill follows the introduction of another piece of bipartisan legislation, by Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va., that would create a new mortgage finance structure to take the place of Fannie Mae and Freddie Mac. While the Corker-Warner bill does not incorporate reforms to the FHA, as does a bill currently being debated in the House, senators said the two legislative proposals are related as part of a comprehensive shakeup for mortgage finance.
Several senators on both sides of the aisle continued to press Johnson and Crapo to begin work on broader mortgage finance reform as they initiate legislative changes at FHA, warning that the whole system is interconnected.
"All of this has to tie together well in order for it to be successful," Corker said at the hearing. "If we just deal with one component, we create tremendous weaknesses in other components of housing finance, especially those components that the government's involved in."
Galante, while supporting Johnson and Crapo's efforts, expressed concerns about certain aspects of the FHA bill. She warned that the proposed requirement to recapitalize the FHA's insurance fund with mandatory premium increases each year could prove to be too inflexible.
"We've already increased premiums very significantly and we clearly are at a tipping point here that if we increased them more we would both shut out additional homebuyers and would actually lose those homeowners, but we also would lose those future homeowners from FHA and therefore we would lose volume which would also hurt our activity," she said.