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HUD Secretary Wants to Break Through Refinancing Barriers

Solvency issues re-emerged for the ""Federal Housing Administration"":http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/fhahistory (FHA) in a hearing convened Tuesday by the ""Senate Banking Committee"":http://banking.senate.gov/public/, with HUD Secretary ""Shaun Donovan"":http://portal.hud.gov/hudportal/HUD?src=/about/hud_secretary calling for lower loan-to-value thresholds and more servicer competition to expand refinance opportunities.

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The hearing follows a bill by Sens. ""Barbara Boxer"":http://boxer.senate.gov/ (D-California) and ""Robert Menendez"":http://www.menendez.senate.gov/ (D-New Jersey) to roll back refinancing barriers for homeowners with GSE-held mortgages and featured the legislation prominently as lawmakers discussed solutions to the housing crisis.

Donovan praised the bill and identified three barriers to refinance opportunities for a broader swath of homeowners, including lower fees, streamlined underwriting practices, and manual appraisals for borrowers even in communities with few recent home sales.

The hearing quickly turned to servicer competition, which the HUD official said is lacking in part because of strict underwriting guidelines under ""Fannie Mae"":http://www.fanniemae.com/portal/index.html and ""Freddie Mac"":http://www.freddiemac.com/, inflating home prices and keeping refinance opportunities out of reach for many homeowners.

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""Servicers who don't service that loan are being discouraged from competing to refinance those loans,"" he told lawmakers, citing a ""number of changes"" that legislators and regulators could make to remove barriers to homeowners.

He faulted existing loan representations and warranties for discouraging servicers from allowing borrowers to refinance at historically low interest rates.

""Frankly, we think it doesn't make a lot of common sense that a homeowner who actually has more equity in their home is a lower-risk borrower... [than] homeowners who may be underwater on their homes,"" he said. ""It's a question of fairness to make sure refinancing is available across the board.""

Sen. ""Richard Shelby"":http://shelby.senate.gov/public/ (R-Alabama), a frequent critic of the FHA's failure to stay above its 2 percent capital ratio buffer, reiterated concerns about the overcommitted housing agency in his opening remarks and later in questions during the hearing.

""Do you share my overall concern about the solvency of FHA?"" he asked Donovan.

The HUD official answered by highlighting recent ""substantial premium increases,"" as well as a new rule on lender indemnification that he billed as a measure to protect the FHA's cash-strapped Mutual Mortgage Insurance Fund.

""I do think we're taking series of a number of broad steps to protect the fund,"" he said.

The FHA remains a political hotspot for the housing industry, with a recent paper by Joseph Gyourko, a professor at the University of Pennsylvania, claiming last fall that it would need anywhere from $50 billion to $100 billion in Treasury draws, if trends persist.

About Author: Ryan Schuette

Ryan Schuette is a journalist, cartoonist, and social entrepreneur with several years of experience in real-estate news, international reporting, and business management. He currently lives in the Washington, D.C., area, where he freelances for DS News and MReport.
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