As the Banking Committee is repeatedly asked to vote for additional funding to bail out of the failed thrift industry, and it begins its recapitalization of the Bank Insurance Fund, FHA reforms must be implemented in a most prudent fashion. The Committee took responsible measures to raise the amount of equity a homebuyer will put in his home, and to establish a risk-based premium to put greater equity into the system. The reform measures which were accepted as a part of the National Affordable Housing Act are intended to lower the default rate of the FHA fund from the current 11.27% to 10.65% alleviating about 4,500 defaults. - I commend this subcommittee on the hard work it put into the FHA provisions of the housing bill. I am hopeful the implementation of such reforms will have a substantial impact on stopping the fund's losses. Our nation is in the midst of a tough economic period, and defaults on real estate loans are seemingly inevitable. As workers are laid off at escalating rates and unemployment skyrockets, it is essential to strengthen the federal assistance programs for which there is increasing demand. I would like to thank our witnesses for coming before the subcommittee today to report on the status of the FHA program and to thank you, Mr. Chairman. STATEMENT OF HONORABLE MARGE ROUKEMA I want to commend the Chairman of the Subcommittee for calling this oversight hearing on the progress of FHA reforms included in the Cranston-Gonzalez Housing Act of last year. I believe it is critical that this Subcommittee continue to hold oversight hearings on the programs we authorized in the Bill and our hearing today, and those to follow, will help prepare us for next year's reauthorization debate. FHA REFORM This hearing on the FHA is somewhat like "deja vu" all over again. On January 10, 1991, HUD issued Mortage Letter 91-1 implementing most of the FHA reform provisions. And now, on May 1, HUD sent to the Committee its proposed regulations for changes in mortgage insurance premiums and the 57% closing cost limit. As with HUD's publication of the Price-Warerhouse report and its own recommendations for FHA reform, there again appears to be some controversy surrounding HUD's proposed regulations. As the Ranking Minority Member I have long concerned with the serious problems at the FHA with respect to the number of defaults and foreclosures as well as poor management and insufficient premiums. As I did last Fall, I want to complement Secretary Kemp for facing the FHA problem squarely and providing timely leadership and recommendations to solve this problem. As I told my colleagues on the Floor last fall, we know all too well, where there is smoke there is fire and that we could not afford to take a half-hearted, wait-and-see attitude toward fixing this problem. Fortunately, the Congress agreed and we adopted a good, sound compromise. As we should have learned, the ultimate goal of our efforts had to be to protect the taxpayer from another S&L-type bailout. If that meant sacrificing some short-term gain for the long-term solvency of the FHA, then we must, however painful for some, go forward with that type of plan. Many of our friends in the industry did not like that fact then and they are still having problems with that today. I hope the commotion being stirred up over these proposed regulations is not an industry attempt to reverse the work we did last year. Our hearing today will focus on the proposed regulations and several other issues including: * performance indicators * the 57% closing cost financing * seller financing * streamlined refinancings subject to annual premiums *the treatment of 15- and 30 year mortgages, and the impact on the VA Veterans preferences I was a Now, let me be absolutely clear. participant in helping shape the HUD compromise package. On the matter of the 57% financing of closing cost, it is true that while the statutory language was carefully negotiated, no specific limitation on the amount of closing costs which could be financed was included in the bill. However, we did give the Secretary explicit discretion to impose additional requirements as he saw fit. But just as I may agree with the Secretary on that matter, I am less certain of his decisions to deduct seller financing from the mortgage calculation or to apply the annual premium to the refinancing of seasoned loans. In conclusion, Mr. Chairman, while I am sensitive to the potential impact our actions, or those of HUD, may have on the very recipients of the FHA program or the various housing interests which help make the FHA program successful, I am, nevertheless most concerned with the overall soundness of the MMI fund. This hearing represents a necessary process which serves to satisfy all of the parties who were involved by allowing their sides to be heard. I will weigh all of the new comments carefully before committing to any changes in the work we accomplished last year. Thank you. OPENING STATEMENT FOR THE HONORABLE CHALMERS P. WYLIE HEARING ON FHA'S MMI FUND Mr. Chairman, I want to thank you for this opportunity to hear testimony from HUD with regard to FHA's Mutual Mortgage Insurance Fund (MMIF). I share with you a strong belief in the need for a healthy, viable federal mortgage insurance program. When last year Secretary Kemp reported to Congress that FHA's MMI Fund was losing money at an alarming rate and would be insolvent in six or seven years, we in the Congress did take prompt, effective action. The final provision adopted in the Cranston-Gonzalez National Affordable Housing Act (NAHA) represents an important compromise. The FHA reform provision was intended to ensure that FHA maintains actuarial soundness and capital adequacy, while not unduly preventing deserving families from using the FHA program. As will be shown by the 1989 audited FH audited statement, the MMI Fund did not improve in 1989. Therefore, it would seem premature to start considering any substantial changes to the FHA reforms at this time. However, the implementation of the statutory FHA reforms should be judiciously considered. The Banking Committee has received the proposed regulations implementing the NAHA reforms to the MMI Fund. It would appear to me, Mr. Chairman, that there are several important issues raised by these proposed regulations. In particular, streamlined refinancing of already seasoned loans appears to be an area in which there may be bipartisan agreement on a possible solution. Mr. Chairman, I am anxious to hear from our Administration friends, as I know you are. Thank you again for holding this hearing, and I look forward to the testimony. |