FUTURE OF FHA THURSDAY, OCTOBER 27, 1977 U.S. SENATE, COMMITTEE ON BANKING, HOUSING AND URBAN AFFAIRS, The committee met at 10 a.m., in room 5302, Dirksen Senate Office Building, Senator William Proxmire (chairman of the committee) presiding. The CHAIRMAN. The committee will come to order. Yesterday we had a very interesting beginning for our hearings on the FHA and the future of the FHA. The FHA, as we all know, has been an extraordinarily useful agency. For over 30 years it has functioned effectively in providing an opportunity for people to buy homes. Some people have said the FHA has made us a nation of homeowners and it certainly played a major role in that and to the great benefit of our country I think. In recent years, however, the FHA's function has diminished very rapidly to a point where only something like 10 percent of homes have been financed through the Federal Housing Administration. This morning we have our second day of hearings on the FHA. We have a number of distinguished witnesses. We are going to start off with the immediate past president of the Mortgage Bankers Association, Mr. Rothchild. Mr. Rothchild, go right ahead, sir. STATEMENT OF KENNON V. ROTHCHILD, IMMEDIATE PAST PRESIDENT, MORTGAGE BANKERS ASSOCIATION, ACCOMPANIED BY CLAUDE POPE, FIRST VICE PRESIDENT; BURTON WOOD, LEGISLATIVE COUNSEL; BRUCE JOHNSON, DEPUTY LEGISLATIVE COUNSEL; AND PETER KAPLAN, SENIOR DIRECTOR FOR MANAGEMENT SERVICES Mr. ROTHCHILD. Thank you, Mr. Chairman. I am accompanied today by Claude Pope, the first vice president of the Mortgage Bankers Association, Burton Wood, our legislative counsel, Bruce Johnson, our deputy legislative counsel; and Peter Kaplan, our senior director for management services. I want to point out that this testimony is a compendium of that which we delivered from time to time in our many appearances before this and other congressional committees. As you know, in almost every appearance before this committee we have expressed our concern about the future of the FHA. As you review our full testimony, you will conclude, as have, the nation has paid the FHA the ultimate compliment. Our ultimate compliment was thinking that it could accomplish almost everything. By trying to do that, I think it has almost come to (55) the place where it's difficult for it to accomplish what we have expected of it. We are reemphasizing and reiterating our previously expressed views, but we have added to this testimony a legislative approach to securing the future of the FHA and that is material that we have not previously brought to you. Let me then just review our prepared testimony and touch its highlights. [Complete statement follows:] Mr. Chairman and members of the Committee, my name is Kennon V. Rothchild. MBA appreciates the opportunity to testify concerning the functions of the Federal Housing Administration (FHA). I will talk about its vital importance; what has happened to impair its effectiveness; why the revitalization of FHA is in the public: interest; and how this can be achieved. The Role of Mortgage Bankers in FHA's Programs Let me explain the role of mortgage bankers in FHA's programs. Mortgage bankers originate more than 75 percent of all the loans insured by FHA. These mortgage loans are, in turn, either sold to other financial institutions, to the Federal National Mortgage Association (FNMA), or institutions that do not ordinarily invest in mortgages through issues of securities guaranteed by the Government National Mortgage Association (GNMA). This makes the FHA mortgage a basic instrument in the mortgage market. Mortgage bankers, by selling FHA-insured loans in the nationwide market, move funds from capital surplus to capital deficit areas, bringing competition into these areas and reducing borrowing costs. Mortgage bankers have contributed significantly to both the development of the nationwide market in FHA-insured mortgages and the implementation of the social objectives of FHA's housing programs. This has benefited both the housing consumer and the mortgage banking industry, as well as the home building industry and the national economy. What Should Be the Future Role of FHA MBA believes that the future role of FHA should be an expansive one. FHA should have a continuing future role to provide a source of insured private mortgage financing on liberal terms, on a self-supporting basis, to as wide a range of American families as possible, in all areas of the country, at all times. The Department of Housing and Urban Development (HUD) Task Force on the Future of FHA, chaired by former HUD Secretary Robert Weaver, has recently issued its report recommending such a role for FHA. In addition, MBA believes that FHA should be self-supporting in that its income from premiums and fees and the investment of its reserves should cover its operating expenses and mortgage loan insurance losses. This is entirely consistent, fully and freely extending the benefits of FHA's programs to homeowners and tenants whose mortgage payments and rental payments are supplemented, as needed, by direct assistance. Such a design for a successful FHA requires an examination of the proper place of private mortgage insurance companies in the mortgage market. Why Private Mortgage Insurance Does Not Take the Place of FHA A dozen or so private companies have been established to provide mortgage insurance. The question arises: does this take the place of FHA? The answer is no. Private mortgage insurance does not take the place of FHA. Private mortgage insurance is different from FHA insurance in scope of coverage, in quality of assurance, in the way it functions in the mortgage market, in the way it serves consumers, and in the customers that it serves. |