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Facts Getting Lost in FHA Safety Debate

“Nobody has asked to come in and look at our balance sheet, to go through our finances, which I’ve offered to everybody.”—FHA Commissioner David Stevens

News reports raising concerns that FHA might be the next major financial institution requiring a government infusion are based on misinformed comparisons with what happened in the subprime market, FHA Commissioner David Stevens said in an exclusive interview with REALTOR® Magazine this week.

At their peak, subprime lenders commanded 40 percent of the residential mortgage market by making low-downpayment, no-document, interest-only, and other types of exotic loans to high-risk borrowers, investors, and speculators, a market that FHA sat out entirely, says Stevens.

Today, it’s FHA that commands 40 percent of the market, but that’s where the comparison ends. The agency makes 30-year, fixed-rate, fully documented loans only for households buying their primary residence. For each loan, the agency maintains capital reserves for the full 30 years of the loan rather than for the 1-2 years required of banks.

Today, the agency has more than $30 billion in reserves, including a fully funded loan-loss reserve. All the talk in the media about reserves dipping below a 2-percent required threshold is about a secondary account that’s above and beyond the agency’s primary reserve. Those two accounts together represent more than 4 percent of assets, he says.

An actuarial audit of FHA finances due out in a few weeks from a non-governmental auditor is expected to find that FHA has sufficient capital to cover all forecasted losses, even assuming further declines in home prices, says Stevens.

“What concerns me, and I think should concern all REALTORS®, is . . . non-fact-based [criticism] from people who jump to conclusions without looking at data [and] create an environment where we’ll be forced to make corrections where they are not required and can hurt this housing recovery.”

Stevens sat down with the magazine for a 30-minute interview that covered the agency’s new appraisal policy and an upcoming mortgagee letter that’s expected to make condo financing more attractive as well as the agency’s credit health. He also talked about the improvements to the agency’s processing that makes it comparable to conventional lenders in terms of processing speed and paperwork requirements.

Remainder of Article and Aduio from Interview

Robert Freedman ·- Senior Editor, REALTOR® Magazine (October 22, 2009)

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Elliott Robinson, JD – Associate Broker
Keller Williams Realty Metro Atlanta
315 West Ponce de Leon Ave., Ste. 100
Decatur, GA 30030
(404) 431-2117
Web: www.elliottyouragent.com
Blog – www.elliottonrealestate.com
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