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Committee Members Concerned FHA is Harming Those It is Supposed to Help

Washington, February 11, 2015 -

Financial Services subcommittee chairmen Rep. Bill Huizenga (R-MI) and Rep. Scott Garrett (R-NJ) raised concerns with Housing and Urban Development Secretary Julian Castro that FHA practices are putting taxpayers and homebuyers at risk.  Taxpayers were forced to bail out FHA in 2013, and today the agency is using many of the same practices employed by subprime lenders at the height of the mortgage crisis in the run up to the Great Recession.


"I want people in homes.  Your historical role has been to help those low- and middle-income families.  I understand it’s maybe not statutorily what you are supposed to do.  And I think with 600 and some odd thousand dollar loan to value it’s hard to argue that that’s low and moderate income.  I want people in homes because it adds to stability -- if they can keep it; if they can keep their home."

"Probably the most satisfying moment I have ever had in my real estate career was when I got Jill.  Jill had become a friend of the family and Jill’s husband had left her.  She was in a mobile home, and I got her into her first home with her two kids.  Jill and, frankly, me crying at the closing because of what this meant for her and for her kids.  And I had to sit there, and as her kids were like, 'What is going on with mom?' I had to explain to her why that was so important for that."

"The downturn ruined people of all creeds, colors and, frankly, economic status and we can’t repeat this.  It’s not about your balance sheet.  Frankly, it’s not about the bank’s balance sheets.  It’s not about the business for the realtors and for the developers and the builders.  It’s for their sakes -- the people -- that are trying to get in there."
"FHA is exempt for the Qualified Mortgage rule, the QM rule, that the CFPB has been putting out.  And if it’s good enough for our community banks and our credit unions why would it not be good enough for FHA?"


"So I want to talk to you about a slightly different topic -- one we may have some agreement on on both sides of the aisle, and that’s the problem and the horrendous problems that it caused and that is predatory lending.  Back in August 2012, a white paper out of the Center of American Progress talked about this. Julia Gordon decried the practice of loan originators who 'steered borrowers toward risky sub-prime loans,’ citing predatory pricing gimmicks, encouraged borrowers to borrow far more than they could manage, and also noted such that loans, as you might imagine, tended to default at a significantly higher rate than conventional mortgages.

"So, as I say, I think this is something you and I can agree with her and decry that practice. And as a matter of fact, I see you nodding, over at the CFPB, Director Cordray has made it a priority of his to look into predatory lending. I suppose you agree that’s an appropriate role for Director Cordray to do.

"With that all being said, what should we make then of the FHA? The FHA engages in each one of those practices that Ms. Gordon talked about.  They employ various pricing gimmicks and strategies, many of which you just talked about, such as exceedingly low down payments.  Low credit scores, that you just talked about.  Inadequate upfront pricing, which has been talked about in the past. High maximum dollar value low limits, which has also just been talked about. And these are all things you are advocating at the FHA.  And I guess it would be ok if, at the end of the day, the results were positive.  But the numbers that we see are a default rate, at the FHA, nearly a 150 percent higher than prime lending.  So isn’t it true, isn’t it fair to say that all of what Ms. Gordon and American Progress, all of what you and I just agreed to are the criteria as to what Cordray should be looking into to are actually the practices right now of the FHA -- predatory lending?"

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