That is exactly the way Congress designed the mortgage insurance fund to operate when it was established 80 years ago, he added. Without the FHA, the housing downturn and economic recession would have been far worse for the nation.
"FHA helped fill the void over the past five years after private lending fled the market by providing safe, affordable access to mortgage credit to millions of Americans who wanted to purchase a home," said Thomas, broker-owner of Evergreen Realty in Villa Park, Calif.
"Had FHA not stepped in to fill the market gap, many families would have been unable to purchase homes, current homeowners would have experienced far greater drops in equity and their home's value, and our nation's economy would be much further from a recovery," he pointed out.
In his testimony, Thomas said FHA has always safely provided access to mortgage financing; it has never offered risky mortgage products, used predatory lending practices or engaged in exotic underwriting. However, like other holders of mortgage risk, FHA incurred great financial losses as a result of overall market conditions that led to increased foreclosures.
Thomas said NAR is confident that FHA has already taken many of the necessary steps to help stabilize the fund as well as numerous administrative changes to mitigate risk. Those changes include five increases to mortgage insurance premiums since 2009, hiring a credit risk officer, implementing credit score floors, requiring higher down payments for borrowers with lower credit scores, and adopting a series of measures to increase lender responsibility and enforcement, he said.
FHA currently has one of the strongest books on record and the quality of borrowers has skyrocketed; continued market improvements and rising home prices will also help improve the fund's future financial condition, noted Thomas.
Thomas said NAR welcomes a time when FHA's market share is reduced to its more traditional levels of 10% to 15% of the market, and the private lending market is once again robust, but we are not there yet. Uncertainty about pending financial regulations and the future of the secondary mortgage market are keeping private lenders from returning to mortgage markets.
Once the rules for mortgage finance are resolved and housing prices stabilize nationwide he anticipates that private investors will return to the market and FHA's market share will return to more traditional levels, he said.
Thomas cautioned about making arbitrary changes to FHA, such as further increasing costs to consumers or limiting the use of the program to certain types of buyers, only for the sake of luring back private markets. While NAR supports changes that are vital to the solvency and strength of the FHA fund, actions to deliberately lower FHA's market share could disrupt the availability and affordability of mortgage credit and undermine the fragile real estate recovery.
FHA continues to play a significant role in the housing market and recovery. Thomas said he applauds them for their leadership and strength during the housing crisis, and for continuing to serve the needs of hardworking American families who wish to purchase a home.