Should the FHA Turn Into the “FEMA” of the Mortgage Crisis?
Today, I read a very intriguing post on the Square Feet blog - revolving around the changing role of the FHA and what it portends.
On Monday, FHA Commissioner Brian D Montgomery gave a presentation to the National Press Club in which he expressed some very serious concerns about the rise in applications for FHA backed loans, and the feeling by some that the FHA organization is being expected to shoulder the burden of the many foreclosures.
The blog goes on to state that Montgomery believes the proposal currently in Congress to refinance roughly $300B worth of questionable loans is very dangerous, and could overstretch the agency to the point where more stable buyers are hurt in the process.
From the FHA site, Montgomery is quoted as saying:
“Lately, the housing market has been as wild and woolly as those days of the Western frontier. Sometimes, as commissioner, I feel that it is “High Noon” and order and justice need to be restored.”
The full text of Montgomery’s speech points to the need for more fiscal conservativism – simple things like checking credit and bank references and making sure no part of the loan downpayment was borrowed need to be observed. He is also pushing for RESPA – or “Real Estate Settlement Procedures Act”, which requires full disclosures of fees, charges, interest rates, and loan terms – as another way of preventing foreclosures in the future. This makes sense, and I agree the fine print needs to be a thing of the past.
These things will certainly help us in the future – but here and now, we are faced with an overwhelming amount of mortgages in trouble who need help from a government agency. There is no doubt that the FHA is going to be overwhelmed by all the demand – and that their resources will be stretched. This agency has been a stalwart group helping American’s achieve the American dream for 74 years, we can only hope that Congress will hear their pleas for help and come up with a plan to help them, without turning them into another disaster relief agency or ”Mega-agency” hamstrung by bureaucracy.
dan said:
why do you have to assume they need help from the government? i could use help from the government to pay my rent. where’s my bailout?
“These things will certainly help us in the future – but here and now, we are faced with an overwhelming amount of mortgages in trouble who need help from a government agency.”
June 11, 2008 9:29 PM
brenda.keener said:
Needing help – and getting help – are two different things. This sentence was only meant to show that they need help. If FHA helped all of them, it could create major problems for the agency.
June 12, 2008 7:34 AM
Is The FHA Being Asked to Do Too Much? - Mortgage Rate News said:
[...] Montgomery does think that there are steps that could be taken. The Redfin blog reports on what the FHA chief things could be done: The full text of Montgomery’s speech points to the need for more fiscal conservativism – simple [...]
June 12, 2008 8:38 AM
San Mateo Home Sellers in Trouble said:
I think the speech made by Montgomery is very sensible, but unfortunately it seems that very few sensible people are listened to in the government. I for one don’t think that the government has a need to directly intervene with the free market. Their role is to make rules, but not actually mess with the transactions and “fix” deals gone bad. Rules of disclosure and more education would be a lot more helpful than just pouring money to people who do not deserve it.
June 12, 2008 10:20 AM
Brenda Keener said:
I completely agree – we should leave the free market alone, but at the same time, there should be some relief for people hurt by deceptive practices. Which branch of the government should deal with this? I believe the local and state governments should take the lead in making the guilty parties – not the government – pay for what they did.
A return to fiscal conservatism was badly needed in the mortgage industry, but the bubble caused lots of “rule bending” which we are now paying for.
June 13, 2008 7:41 AM