BLOG VIEW: I used to be under the belief that federal housing finance policy was merely incompetent. I was wrong. It is beyond mere incompetence, to the point that it is almost Dadaist in its embrace of the nonsensical. And if you think I'm being a little excessive, consider a pair of astonishing statements offered last week by high-ranking housing officers in the Obama administration.
Let's start with Carol Galante, the commissioner of the Federal Housing Administration (FHA). Last week, Galante announced a series of measures that are supposed to strengthen the agency's Mutual Mortgage Insurance Fund (MMIF), which currently boasts a capital reserve ratio of -1.44%. Among these measures is a 10 basis-point increase on the mortgage insurance premium for most new home loans and a 1.5% increase on jumbo mortgage down payments.
However, Galante believes that the measures will do more than just bulk up the broken MMIF.
‘In addition to protecting the MMIF, these changes will encourage the return of private capital to the housing market, and make sure FHA remains a vital source of affordable and sustainable mortgage financing for future generations of American home buyers,’ said Galante.
Of course, Galante didn't bother acknowledging that you cannot protect a fund with a below-zero capital reserve ratio – there's nothing to protect, because it is bone-dry empty. And the notion that a few shabby increases on insurance premiums and down payments will unleash a Niagara-worthy flow of private capital seems to be a new low in utter foolishness.
As for ensuring the FHA remains a ‘vital source of affordable housing,’ a much-needed rebuke to that pipe dream was issued by Rep. Jeb Hensarling, R-Texas, the chairman of the House Financial Services Committee.
‘The FHA's single-family insurance fund, which insures more than $1 trillion worth of home mortgages, has a negative economic value of $16.3 billion, according to an actuarial report released by the Department of Housing and Urban Development in November ,’ said Hensarling's committee in a press statement. ‘This means that if the FHA stopped writing new business today, it could not cover the losses anticipated on loans it has already insured.’
The only thing more bizarre than the Galante pronouncement was a speech delivered by Michael Stegman, counselor to the Treasury Secretary for housing finance policy, at the American Securitization Forum. Stegman remarked on the state of housing finance by observing how the slate of federal programs ‘still supports over 80 percent of the nation's newly originated mortgages – a state of affairs that is simply unsustainable and undesirable over the long term.’
Actually, the percentage being supported is over 90%. I don't know how you feel, but I am not very encouraged when a Treasury official doesn't know the difference between 80% and 90%.
Even more remarkable is Stegman's condemnation of ‘a state of affairs that is simply unsustainable and undesirable over the long term.’ Stegman conveniently forgot that the only reason we are stuck with an ‘unsustainable and undesirable’ situation is because his boss – and his boss' boss – refused to show any leadership in regard to ending the multi-billion-dollar conservatorship of Fannie Mae and Freddie Mac.
But, hey, why should Galante and Stegman seem like oddballs? After all, this is an environment in which the office of the director of the Federal Housing Finance Agency has been vacant since August 2009 and a D.C. Circuit Court ruled that the director of the Consumer Financial Protection Bureau achieved his job through a blatant violation of constitutional law. If you are looking for coherence, you're in the wrong place at the wrong time.
– Phil Hall, editor, MortgageOrb
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