During a hearing before the Senate Banking Committee Wednesday, Carol Galante--assistant secretary for HUD and commissioner of the Federal Housing Administration (FHA)--expressed general approval for the senate's proposed FHA Solvency Act of 2013. However, she did highlight a few concerns.
Galante praised the bill for allowing FHA to seek indemnification from lenders when they do not follow appropriate guidelines and for permitting FHA to make changes to its Home Equity Conversion Mortgage (HECM) program.
However, Galante asked the bill authors to consider permitting FHA more authority when it comes to servicing. In particular, she asked that FHA be allowed to transfer servicing of some loans to specialty servicers just as commercial shops do.
She also voiced an aversion to the bill's demand for mandatory premium increases when FHA's capital reserve ratio dips below its required level.
""While we share the Committee's desire to ensure that future FHA leadership takes the appropriate steps to protect the Fund and satisfy the capital reserve ratio, as we have shown since 2009, premiums are only one factor to consider in rebuilding that supplemental account,"" Galante said.
Furthermore, she added, ""As written, the language does not account for the impact increased premiums themselves will have on access to credit, endorsement values, and ultimately the health of the fund.""
Lastly, Galante expressed concern regarding FHA's infrastructure and systems, which hinder the agency's ""ability to manage risk appropriately.""
When the topic of risk-sharing came up, Galante told the committee FHA has not engaged in risk-sharing much in the past. She pointed out that when FHA did participate in risk-sharing in the 1980s, the endeavor ""cost the fund significant dollars.""
""We can look at it seriously as we go down the road,"" Galante said, but she did warn the committee about ""unintended consequences"" of such a model, adding that the GSEs faced challenges when they engaged in risk-sharing during the recent housing crisis.
When faced with the question of whether the FHA Solvency Act of 2013 would deter the agency from needing to draw additional funds to maintain its solvency this year, Galante said the bill won't affect whether FHA draws funds this year but said it ""will help FHA's long-term financial health.""