FHA's Role In Homeowners' Rescue Plan Explained

Copyright © 2008 National Public Radio®. For personal, noncommercial use only. See Terms of Use. For other uses, prior permission required.

MELISSA BLOCK, host:

This is All Things Considered from NPR News. I'm Melissa Block.

ROBERT SIEGEL, host:

And I'm Robert Siegel. In all the turbulent economic events of the past week, you could be forgiven for missing the unveiling of the Hope for Homeowners program. Last Wednesday, as Washington struggled to assemble congressional majorities for the financial rescue package, the Federal Housing Administration unveiled its program to help homeowners stay in their homes and to prevent foreclosures. The FHA insures mortgages, and under the program it intends to guarantee up to $300 billion a year of 30-year, fixed-rate loans. Brian Montgomery is federal housing commissioner and assistant secretary for housing. Welcome to the program.

Mr. BRIAN MONTGOMERY (Assistant Secretary for Housing, Federal Housing Commissioner; Department of Housing and Urban Development): Thank you for having me.

SIEGEL: First, if someone has an adjustable rate mortgage that has reset up, and now that homeowner is at risk of falling behind, what can the homeowner do, what can the FHA do for him?

Mr. MONTGOMERY: Well, we've been refinancing families who are in that specific case, gosh, for over a year now. In fact, we refinanced about 375,000 families who have experienced subprime ARM resets. However, we're finding a lot of those families are also underwater in their mortgage. And that's what this new program, the Hope for Homeowners program, is targeted at.

SIEGEL: The Congressional Budget Office estimates that this plan will help just about that number, about 400,000 people, over the next three years. Is that number correct? Because it would seem to be a drop in the bucket. It sounds like a bad month of foreclosures this year.

Mr. MONTGOMERY: Well, if you add up all the assistance that's been provided, whether it's through the private sector initiative, the HOPE NOW alliance, through FHA, and through what the CBO estimates will do with this program, you're talking way over a million, million and a half, almost two million families who've been helped.

SIEGEL: We spoke a little over a year ago, by which time the Federal Housing Administration had been sort of handed the ball as being the lead agency for dealing with the subprime crisis. It's been an abysmal year in the housing sector. One could say your agency either didn't do enough or could not do enough. Is that fair?

Mr. MONTGOMERY: Well, actually quite the opposite. Let me just say when I arrived here about three and a half years ago, FHA had about a two percent market share. Now, it was about that time we decided we needed to reform FHA. They needed to give us the tools in this modern era to better do our job. Unfortunately, it took about two and a half years for Congress to finally pass FHA reform. You know, I often tell my audiences when I speak, I wonder how this subprime meltdown would have looked had FHA gotten its reform and modernization effort when it first asked for it years ago.

SIEGEL: You think it could have been significantly averted?

Mr. MONTGOMERY: Oh, absolutely. And I think to that end, FHA now is worth 12 to 14 percent market share and refinanced 375,000 families, that's three times more than we did last year. Our purchase business for people not refinanced, but using us to buy a home, that line of business is up 100 percent. So people are turning to FHA in droves. We just wished we would have been better equipped to help them two or three years ago.

SIEGEL: But as FHA-insured loans become a much larger share of the mortgage market, what's happening, in part, is people who had gone to subprime loans instead are now turning to you. Is FHA at risk now of taking on the very same uncreditworthy borrowers that previously were going with subprime loans and possibly facing a crisis of its own down the road?

Mr. MONTGOMERY: No, we're not, and for several good reasons. One, you have to verify your income with FHA. You have to have a stable job history and have been with your current employer for at least two years. We check income tax returns. We have qualifying income ratios. We do everything the subprime industry was not doing.

SIEGEL: Can the FHA handle the volume of mortgages it's now planning to insure? Is your staff that much bigger and are your procedures that much more efficient than they were until just a couple of years ago?

Mr. MONTGOMERY: Well, that's a very good question. You know, our application rate - by the way, we get a report every couple of weeks - we're on an annualized rate of about three million. Those are numbers we haven't seen in 10 years. But FHA was also about the same size then as it is now.

SIEGEL: You're saying that you were a bloated federal agency over the past several years?

(Soundbite of laughter)

Mr. MONTGOMERY: Anything but, I might add. The computer language COBOL has been around for 50 years, yet it's the heart and soul of one of our IT products. I've been advocating before Congress for three years we need more money for systems, we need more staff, and in some cases they've been hearing us, but in some cases it has taken a little too long.

SIEGEL: Now, I've read that the modernization program you've had there at FHA is about a $29 million program. I don't want to belittle even a million dollars, but $29 million dollars doesn't seem like a budget to go after another $300 billion worth of loans.

Mr. MONTGOMERY: Well, the good news is that on the Hope for Homeowners program, we do have the flexibility to hire more staff, to do more IT upgrades. But I'd be lying if I didn't say it hasn't been a problem with FHA for many years. And it's just a shame that it's now taken a near mortgage meltdown for Congress to finally realize, and you know what, maybe Commissioner Montgomery was right. Maybe they do need more staff and more systems upgrades.

SIEGEL: Well, Brian Montgomery, the Federal Housing Administration commissioner and assistant secretary for housing. Thanks a lot for talking with us.

Mr. MONTGOMERY: Thank you, sir.

Copyright © 2008 National Public Radio®. All rights reserved. No quotes from the materials contained herein may be used in any media without attribution to National Public Radio. This transcript is provided for personal, noncommercial use only, pursuant to our Terms of Use. Any other use requires NPR's prior permission. Visit our permissions page for further information.

NPR transcripts are created on a rush deadline by a contractor for NPR, and accuracy and availability may vary. This text may not be in its final form and may be updated or revised in the future. Please be aware that the authoritative record of NPR's programming is the audio.