PORTLAND -Turning 80 is high time to get out of the rat race, take it easy, smell the roses. Not so the Federal Housing Administration, a part of HUD. As it celebrates its 80th birthday this summer, it's humming along strong as ever, offering American families a safe, sound and smart way to own a piece of the American Dream.
It was a dream denied to most in in the 1930's. Buying a home then meant 50 percent down and re-payment within three to five years. Not exactly a homebuyer’s market.
FDR (Franklin Delano Roosevelt) came from a family with resources more than adequate to buy a home. But he knew he was one of the lucky few and, more importantly, understood the value of expanding homeownership, not just the stronger families, stronger neighborhoods and stronger cities it would build, but also the stimulative effect more homeownership would have on speeding the nation’s recovery from Great Depression.
So, his New Deal reforms included creation of FHA to enable families of means more limited than his to buy a home. The down payment wouldn’t be onerous -- 3 percent then, 3.5 percent today – with repayment amortized over 30 years. Above and beyond principal, interest and taxes, borrowers also would pay a monthly premium into an FHA insurance fund that protects lenders against the risk that borrowers who went belly-up.
For 80 years FHA has been a model that works, a good deal for the buyer, the lender and even the American taxpayer, since the FHA fund is funded not by tax dollars, but by the premiums paid by homebuyers. So good is FHA’s model that, over the last 80 years FHA has endorsed almost 36.4 million mortgages nationwide – including more than 375,000 in Oregon - with a total dollar value of more than $3.5 trillion.
In 2007 the Government Accountability Office took a look at FHA, From 1996 to 2005, it found, FHA had lost market share to conventional and, especially, sub-prime lenders, raising questions about FHA’s “role in and ability to adapt to the mortgage market.” Others said it meant America no longer needed FHA.
But then, a year later, came the Great Recession, the darkest economic times most of us have known. Unemployment soared. Businesses closed. Stock markets plunged. Banks failed. And “underwater” became the new normal in homeownership.
Private lending slowed to a crawl, leaving both first-time homebuyers and at-risk homeowners looking to refinance from risky loans to safer mortgage with few, if any, places to turn. Except FHA.
“During the Great Recession,” HUD Secretary Shaun Donovan told the National Association of REALTORS, “FHA stepped up to keep capital flowing in the mortgage market.” Many people, he added, FHA “prevented a total housing crash.”
The numbers tell the story. From 2009 through 2013, FHA’s market share more than quadrupled. FHA endorsed almost a quarter – 24 percent – of all the mortgages FHA has endorsed in 80 years in Oregon, pumping more than $17 billion of capital into an economy starved for it.
Today the recovery is well underway. Builders are back to building, lenders back to lending and real estate professionals back to closing deals. And, at the request of President Obama, the Congress has enacted reforms to protect homebuyers from the abusive lending which precipitated the collapse of the housing market and the rest of the economy with it.
It’s a perfect time for FHA to step back and to re-focus on its original mission to make sure there is access to affordable mortgage credit for underserved borrowers. Here too numbers tell the tale. From 2007 to 2012 “lending to borrowers with scores credit scores between 620 and 680 fell 90 percent” leaving many who are ready and eager to buy unserved by the market.
Not for long, thanks to a four-year pilot called HAWK – Homeowners Armed With Knowledge – that’s a key element in FHA’s new Blueprint for Access. The concept’s simple. Housing counseling cuts delinquency among firs-time homeowners by 29 percent and by 15 percent among all buyers. If buyers get counseling, they’re more likely to get attention and, even better, approval from lenders.
And buyers have every incentive to get counseling. Under HAWK, FHA-insured first-time buyers who’ve completed counseling before signing a purchase agreement get 50 basis points knocked-off their upfront mortgage insurance premium with another 10 points off at closing. If they then make 24 straight monthly payments with no 90-day delinquencies, off go another 15 points. All told, it’s like cutting almost $10,000 from the average FHA mortgage of $180,000.
During the Great Depression FHA opened the door to affordable homeownership for most Americans. During the Great Recession FHA made sure the door didn’t slam shut. And now, with the recovery underway and the Blueprint for Access in place, FHA hopes to open the door still wider still.
It’s all about people, said Secretary Donovan. “People deserve access to credit. People deserve the chance to buy a home if they are ready. People deserve to operate in a market that is safe and stable. And it’s up to us to make it happen.” It’s what FHA has been doing for 80 years and will, we hope, do at least 80 more.