WASHINGTON — Despite continuing Bush administration opposition to a plan from top Democrats that would significantly expand the government's role in fighting the housing crisis, the head of the agency at issue appears open to a compromise.
Federal Housing Administration Commissioner Brian D. Montgomery said that the White House and Democratic leaders agree on the core concept — using a once-sidelined agency to help ease the foreclosure crisis — and are within reach of agreeing on some details.
"There's some agreement. Look, we're not way, way far apart on some of this," Mr. Montgomery said in an interview last week in his Washington office. "We do talk to their staffs. I've got staff over there right now talking with their staff."
At their core, plans supported by the FHA, House Financial Services Chairman Barney Frank, Senate Banking Chairman Chris Dodd, and all three presidential candidates call for expanding the FHA's ability to let borrowers whose loan balances exceed their home values refinance after their lender takes a haircut over a foreclosure.
Mr. Montgomery said the Bush administration has concluded the plan can be implemented without legislation. It is asking that lenders write down a loan to 90% or 97% of its appraised value and that the program be funded with fees from struggling borrowers.
"We want to move out and start helping more folks" without a bill, Mr. Montgomery said.
But he would not rule out a compromise. "Our door is always open to communication, but I don't want to speculate right now," Mr. Montgomery said in a follow-up interview Tuesday. "We'll see what comes out of the markup."
Under Rep. Frank's plan, lenders would be required to write down the loan to 85% of its appraised value and would fund the program with an initial infusion of government cash (the Massachusetts Democrat said much of the cost would eventually be repaid).
A vote on the bill is scheduled for Wednesday and Thursday by the House Financial Services Committee. Sen. Dodd, D-Conn., is working on a similar measure, which would require an 87% writedown. The Senate Banking Committee is scheduled to vote on the plan May 6.
Mr. Montgomery, a longtime Bush ally, is supporting legislation that would give the FHA more power to charge risk-based premiums, a provision in broader FHA modernization legislation. He said such power would allow the agency to handle more refinancings.
"Everything that we're proposing we can do administratively, but there is one issue that we've been advocating for some time that would help" the FHA "and that's the ability for us to do fair and equitable pricing for our premiums," he said. "Especially in this environment, we're going to be perhaps taking on more risk here."
Private mortgage industry participants have cried foul over the FHA's having risk-based pricing powers, but Mr. Montgomery said those participants have all but walked away from the sector of the market that needs assistance most.
"Now, in light of the constriction of credit, a lot of them … have pulled back from the" high-loan-to-value, "low-FICO-score market. It's a business decision they made. I don't disagree with it," he said. "If I were in the same place as a for-profit company, I probably would have made the same decision. But if you're going to pull back from that … then let us be able to price it sensibly."
Last year HUD announced a plan to implement risk-based pricing administratively, but it put that on hold when Congress appeared ready to grant the authority through legislation.
Now, Mr. Montgomery said the agency will likely finalize its rule in the absence of congressional action. He said a new pricing structure would allow the agency to handle the cost of helping more subprime borrowers, while not penalizing families with limited income who did not get trapped in a risky loan and just need the FHA to buy a home.
"I want to be able to say: 'You've got a subprime loan. For whatever reason you're falling behind, and we think we can save you. I want to charge you up here,'" he said. "But this family in Minnesota who's saving their nickels and dimes, I want to charge them down here. I want to wall the two off from each other."
While policymakers now point to the agency as a solution, the FHA, ironically, has been fighting for years not to be irrelevant, focusing its efforts on passing a broader modernization bill to increase its presence in a mortgage market where it has been seen as outdated.
Mr. Montgomery said that the recent crisis has only underlined the FHA's importance, and that it has bolstered efforts to pass a modernization bill, which he hopes will be enacted before he leaves office when President Bush's term expires in January.
He disputes criticism of the FHA and the Department of Housing and Urban Development, which oversees the agency, for being slow to respond to the crisis.
"We always remained focused on what we needed to do," said Mr. Montgomery, 51, who is also assistant secretary for housing at HUD. "In January of '06, I went up to the Hill to meet with anybody who would talk to me" about FHA reform legislation.
"Some of them were like, 'Sure, but the housing market's doing fine,' " he said. "But we could look at the data and see that there was a problem coming, and we're still waiting for that FHA modernization bill."
Differing versions of the bill passed the House and Senate last year but have not been reconciled. The Senate passed a housing stimulus bill this month that included yet another version of FHA modernization, but it, too, has not been reconciled with the House bill.
The latest iteration of the FHA's foreclosure prevention plan, announced at a hearing this month, would enable subprime borrowers who have missed two consecutive loan payments — or have been late twice over the previous year — to refinance into an FHA-backed loan. The original lender or servicer would write down the principal on the previous credit to 97% of the home's appraised value, a standard FHA haircut.
Borrowers with three missed payments could have their loans written down to 90% of the appraised value. To keep borrowers from trying to profit on purpose from the plan, Mr. Montgomery said a soft second lien would let lenders profit off of the home's future appreciation.
HUD already announced a more limited plan in August to spur refinancings for subprime borrowers. But critics have said that plan — which to date has helped 160,000 borrowers — did not go far enough. Mr. Montgomery appears tired of the charge.
"When people scold me for only helping 160,000 people so far, I've got to go, 'Well, I think they would tell you that was pretty significant if you're one of those 160,000,'" he said.
