Federal Housing Programs Need Funding for Technology and Risk Management Improvements

The importance of the federal housing finance programs for low-to-moderate income families has grown in the years since the recession. To keep pace with changing program needs, more funding is needed to ensure that the Federal Housing Administration (FHA), Department of Veterans Affairs (VA), Department of Agriculture's (USDA's) Rural Housing Service and Ginnie Mae have the necessary technology, systems and human capital to run these programs in a financially sound manner.

Overview:

  • FHA, USDA, VA and Ginnie Mae are all critical to supporting homeownership for many first-time homebuyers, low-to-moderate income families, and minorities-especially in the wake of the financial crisis as credit standards tightened dramatically. Today, these programs continue to responsibly meet the needs of these underserved segments. 
  • According to 2015 Home Mortgage Disclosure Act (HMDA) data, 68 percent of African American homebuyers used a government-backed loan that year.
  • According to the Department of Housing and Urban Development (HUD)-FY 2017 to date-82 percent of FHA purchase endorsements were to first-time homebuyers, with the minority purchase share at 37 percent.
  • USDA loans constituted less than one percent of total loan originations during the decade preceding the financial crisis. Following the crisis, USDA was one of the only sources of mortgage credit in rural areas. The USDA share of purchase originations, based on number of loans, rose to 3.2 percent in 2015. As a result, USDA accounted for nearly $16 billion in loan volume that year.
  • Since the mortgage crisis, demand for VA loans has increased seven-fold. In 2015, the VA share of purchase originations-based on number of loans-was nine percent with VA purchase volume at roughly $80 billion.
  • The number of applications for VA loans hit one million in 2015, which was the highest number since 1999.  
  • Ginnie Mae, the entity responsible for guaranteeing the bonds backed by government guaranteed loans, is also struggling to keep up with the growing demand. In recent years, Ginnie Mae has been using outdated technology and has been seriously understaffed. The agency lacks the resources to effectively manage outstanding mortgage-backed securities (MBS) currently totaling $1.7 trillion-representing more than 10 million active loans.
  • In 2016, Ginnie Mae guaranteed $526 billion in new MBS, compared to $81 billion of MBS in 2006.
  • Since 2006, Ginnie Mae has had 127 employees guaranteeing loans and has yet to increase their staffing sufficiently to handle the increased volume.

Impact:

  • The systems, technology and staff at these federal agencies are stretched too thin to efficiently and effectively manage their expanded programs. 
  • Managing these guarantees with outdated systems and insufficient staff degrades the service levels and puts taxpayers at potential risk.
  • In the absence of sufficient and stable funding, some agencies have proposed charging administrative fees to lenders. These fees would be passed along to consumers, raising the cost of mortgage credit.

MBA's Position / Next Steps:

  • MBA strongly supports providing FHA, USDA, VA and Ginnie Mae with the resources for the staffing and systems upgrades they need to operate effectively.
  • In 2015, Ginnie Mae MBS-into which nearly all FHA, VA, and Rural Housing Service loans are sold-provided liquidity for 1.9 million home mortgage transactions.
  • By these metrics, these programs are perhaps the most successful federal programs serving low-to-moderate income and minority families by helping them buy homes, build wealth and strengthen neighborhoods and communities.
  • It is critical to ensure that these programs are allocated sufficient resources through the appropriations process, to ensure they are managed effectively and efficiently with minimal risk to the taxpayer.
  • Funding these enhancements with fees on lenders would set a dangerous precedent of shifting operations funding for federal housing programs, and raising costs for the borrowers they are designed to serve.

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