[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
THE EXPANDING AMERICAN HOMEOWNERSHIP
ACT OF 2007: H.R. 1852 AND RELATED
FHA MODERNIZATION ISSUES
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
HOUSING AND COMMUNITY OPPORTUNITY
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
APRIL 19, 2007
__________
Printed for the use of the Committee on Financial Services
Serial No. 110-23
U.S. GOVERNMENT PRINTING OFFICE
36-818 PDF WASHINGTON DC: 2007
---------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866)512-1800
DC area (202)512-1800 Fax: (202) 512-2250 Mail Stop SSOP,
Washington, DC 20402-0001
HOUSE COMMITTEE ON FINANCIAL SERVICES
BARNEY FRANK, Massachusetts, Chairman
PAUL E. KANJORSKI, Pennsylvania SPENCER BACHUS, Alabama
MAXINE WATERS, California RICHARD H. BAKER, Louisiana
CAROLYN B. MALONEY, New York DEBORAH PRYCE, Ohio
LUIS V. GUTIERREZ, Illinois MICHAEL N. CASTLE, Delaware
NYDIA M. VELAZQUEZ, New York PETER T. KING, New York
MELVIN L. WATT, North Carolina EDWARD R. ROYCE, California
GARY L. ACKERMAN, New York FRANK D. LUCAS, Oklahoma
JULIA CARSON, Indiana RON PAUL, Texas
BRAD SHERMAN, California PAUL E. GILLMOR, Ohio
GREGORY W. MEEKS, New York STEVEN C. LaTOURETTE, Ohio
DENNIS MOORE, Kansas DONALD A. MANZULLO, Illinois
MICHAEL E. CAPUANO, Massachusetts WALTER B. JONES, Jr., North
RUBEN HINOJOSA, Texas Carolina
WM. LACY CLAY, Missouri JUDY BIGGERT, Illinois
CAROLYN McCARTHY, New York CHRISTOPHER SHAYS, Connecticut
JOE BACA, California GARY G. MILLER, California
STEPHEN F. LYNCH, Massachusetts SHELLEY MOORE CAPITO, West
BRAD MILLER, North Carolina Virginia
DAVID SCOTT, Georgia TOM FEENEY, Florida
AL GREEN, Texas JEB HENSARLING, Texas
EMANUEL CLEAVER, Missouri SCOTT GARRETT, New Jersey
MELISSA L. BEAN, Illinois GINNY BROWN-WAITE, Florida
GWEN MOORE, Wisconsin, J. GRESHAM BARRETT, South Carolina
LINCOLN DAVIS, Tennessee RICK RENZI, Arizona
ALBIO SIRES, New Jersey JIM GERLACH, Pennsylvania
PAUL W. HODES, New Hampshire STEVAN PEARCE, New Mexico
KEITH ELLISON, Minnesota RANDY NEUGEBAUER, Texas
RON KLEIN, Florida TOM PRICE, Georgia
TIM MAHONEY, Florida GEOFF DAVIS, Kentucky
CHARLES A. WILSON, Ohio PATRICK T. McHENRY, North Carolina
ED PERLMUTTER, Colorado JOHN CAMPBELL, California
CHRISTOPHER S. MURPHY, Connecticut ADAM PUTNAM, Florida
JOE DONNELLY, Indiana MARSHA BLACKBURN, Tennessee
ROBERT WEXLER, Florida MICHELE BACHMANN, Minnesota
JIM MARSHALL, Georgia PETER J. ROSKAM, Illinois
DAN BOREN, Oklahoma KENNY MARCHANT, Texas
THADDEUS G. McCOTTER, Michigan
Jeanne M. Roslanowick, Staff Director and Chief Counsel
Subcommittee on Housing and Community Opportunity
MAXINE WATERS, California, Chairwoman
NYDIA M. VELAZQUEZ, New York JUDY BIGGERT, Illinois
JULIA CARSON, Indiana STEVAN PEARCE, New Mexico
STEPHEN F. LYNCH, Massachusetts PETER T. KING, New York
EMANUEL CLEAVER, Missouri PAUL E. GILLMOR, Ohio
AL GREEN, Texas CHRISTOPHER SHAYS, Connecticut
WM. LACY CLAY, Missouri GARY G. MILLER, California
CAROLYN B. MALONEY, New York SHELLEY MOORE CAPITO, West
GWEN MOORE, Wisconsin, Virginia
ALBIO SIRES, New Jersey SCOTT GARRETT, New Jersey
KEITH ELLISON, Minnesota RANDY NEUGEBAUER, Texas
CHARLES A. WILSON, Ohio GEOFF DAVIS, Kentucky
CHRISTOPHER S. MURPHY, Connecticut JOHN CAMPBELL, California
JOE DONNELLY, Indiana THADDEUS G. McCOTTER, Michigan
BARNEY FRANK, Massachusetts
C O N T E N T S
----------
Page
Hearing held on:
April 19, 2007............................................... 1
Appendix:
April 19, 2007............................................... 37
WITNESSES
Thursday, April 19, 2007
Diaz, Lautaro ``Lot'', Vice President, Community Development,
National Council of La Raza.................................... 25
Harrison, Iona C., GRI, National Association of Realtors......... 23
Killmer, William P., Group Executive Vice President for Advocacy,
National Association of Home Builders.......................... 30
Montgomery, Hon. Brian D., Assistant Secretary for Housing,
Federal Housing Commissioner, U.S. Department of Housing and
Urban Development.............................................. 8
Robbins, John M., CMB, Chairman, Mortgage Bankers Association.... 27
Smith, Ed, Jr., Chairman, CAMB Government Affairs Committee,
Chief Executive Officer, Plaza Financial Group, California
Association of Mortgage Brokers................................ 28
APPENDIX
Prepared statements:
Miller, Hon. Gary............................................ 38
Sires, Hon. Albio............................................ 41
Diaz, Lautaro ``Lot''........................................ 43
Harrison, Iona C............................................. 48
Killmer, William P........................................... 56
Montgomery, Hon. Brian D..................................... 65
Robbins, John M.............................................. 71
Smith, Ed, Jr................................................ 88
Additional Material Submitted for the Record
Waters, Hon. Maxine:
Statement of AARP............................................ 96
Joint letter to Chairman Frank and Chairwoman Waters from
ACORN, HomeFree-USA, Housing Partnership Network, and
Mission of Peace........................................... 135
Statement of Peter H. Bell, President, National Reverse
Mortgage Lenders Association............................... 138
Statement of the Consumer Mortgage Coalition................. 143
Letter from the National Association of Realtors to Hon.
Alphonso Jackson, Secretary of HUD, dated April 9, 2007.... 150
Letter to Chairwoman Waters from the National Council of
State Housing Agencies, dated April 18, 2007............... 152
THE EXPANDING AMERICAN
HOMEOWNERSHIP ACT OF 2007:
H.R. 1852 AND RELATED
FHA MODERNIZATION ISSUES
----------
Thursday, April 19, 2007
U.S. House of Representatives,
Subcommittee on Housing and
Community Opportunity,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 10 a.m., in
room 2128, Rayburn House Office Building, Hon. Maxine Waters
[chairwoman of the subcommittee] presiding.
Present: Representatives Waters, Cleaver, Green, Clay,
Maloney, Sires, Ellison, Wilson; Biggert, Miller of California,
Capito, Garrett, and Neugebauer.
Also present: Representative Frank, Ex Officio.
Chairwoman Waters. This hearing of the Subcommittee on
Housing and Community Opportunity will come to order. Today's
hearing is entitled, ``The Expanding American Homeownership Act
of 2007: H.R. 1852 and Related FHA Modernization Issues.''
Without objection, all members' opening statements will be made
a part of the record.
We will be recognizing subcommittee chairs and ranking
members for, I think, 5 minutes each, and there will be an
additional 5 minutes that will be given for recognition on both
sides of the aisle. With that, I will recognize myself for the
first 5 minutes.
Good morning, ladies and gentlemen. I want to thank Ranking
Member Biggert for joining with me to hold today's hearing.
Many members are anxious to see this bill move through the
House, and I certainly am one of them.
The bill introduced by me, and cosponsored by Chairman
Frank, will revitalize the Federal Housing Administration
(FHA), once the preeminent provider of mortgage insurance to
low- and moderate-income families in the country. I believe
that this FHA legislation is critically important to bringing
stability to the mortgage lending market, particularly at the
lower spectrum of the market.
Everyone now knows about the perils of the subprime lending
market with the dramatic rise in foreclosures and estimates
that as many as 2 million mortgage loan defaults are predicted
by year's end. So the sooner we can reinvent FHA to become a
viable FHA, the sooner we will be able to assist many low- and
moderate-income borrowers who are left with few safe and viable
mortgage options. Refinancing, reverse mortgages, and other FHA
products are all important.
Specifically, H.R. 1852 will facilitate the modernization
of FHA and bring it into the realities of the housing market in
the 21st century by: increasing loan limits in high-cost areas
of the country like California, where the median price of a
home in Los Angeles is $513,000, and New York and
Massachusetts, where FHA has been driven from the market
forcing many borrowers to turn to high-cost financing and other
non-traditional loan products; authorizing zero down and lower
down payment FHA loans for home buyers who could not otherwise
make the down payment required under current FHA rules to make
FHA more consistent with other private sector loan products,
especially where the borrower has a strong record and credit
history; directing FHA to underwrite to borrowers with higher
credit risks than FHA currently serves that are still credit
worthy to take out a mortgage loan but who have been otherwise
driven into the subprime loan market with pre-payment
penalties, ARMs, and ultimately unbearable mortgage interest
rates that are leading to foreclosures; and permanently
eliminating the current statutory volume cap on FHA reverse
mortgage loans to permit FHA to meet the growing needs of home
equity rich and cash poor seniors and Baby Boomers who will
need help paying bills or home costs.
In addition, H.R. 1852 includes a number of important
changes to the FHA bill that passed the House last year. First,
it eliminates the fee increases from last year's bill for
borrower who continue to make a down payment, scaling back the
maximum up-front fee from 3 percent to 2.25 percent and the
maximum annual fee from 2.2 percent to .55 percent. These
reductions will reduce FHA closing cost premiums for a
hypothetical family buying a $300,000 home by $2,250 in annual
fees over a 5-year period of $20,000 compared to last year's
bill.
The bill also adds a number of home buyer protections not
included in last year's bill for families taking out riskier
zero-down payment loans and for borrowers who represent a
higher credit risk. The bill gives HUD the authority to require
pre-purchase counseling for riskier borrowers, requires a
number of disclosures spelling out the costs and risk of zero
down and lower down payment loans, and provides the borrower
opt-in to receive notice of availability of counseling in the
event a borrower falls behind in their loan payments. FHA has
very strong loss mitigation measures in place so the borrower
protections in the bill are a plus that are widely supported.
Finally, the bill includes a provision authorizing loan
limit increases for FHA rental housing loans in high cost areas
where current FHA loan limits do not keep pace with local
construction costs. I have said over and over again that there
is an affordable housing crisis in America. I believe that the
FHA modernization bill points us in the direction of a solution
to help meet the housing needs of many Americans who still want
to achieve the status of homeowner.
Thank you. I will now recognize the ranking member, Mrs.
Biggert, for 5 minutes.
Mrs. Biggert. Thank you, Chairwoman Waters, and thank you
for holding this hearing today. I would like to welcome today's
witnesses, many of whom are not new to the subject matter, and
I look forward to hearing their views. I am especially eager to
hear from Assistant Secretary Brian Montgomery about how the
FHA program may be of assistance in this current mortgage
foreclosure crisis. We heard from him on this subject on
Tuesday as well.
Clearly, the FHA has a role to play in the solution to this
country's rising foreclosure rate. As Assistant Secretary
Montgomery indicated in testimony before this committee and
others, FHA is already assisting credit-worthy borrowers in
need of loss mitigation and restructuring assistance. According
to the testimony that he delivered at Tuesday's hearing in
2006, FHA assisted 75,000 families by preventing foreclosure
through its loss mitigation program.
Moving forward, I am sure that Ms. Waters will agree with
me that one of the most important things that this Congress can
do as we search for ways to help those who have been harmed by
the subprime market is to give FHA the tools it needs to be a
viable alternative for first time and lower income borrowers.
That is why this hearing on FHA modernization is both timely
and critical. By modernizing FHA we can provide another
alternative for low-income borrowers who may otherwise be
forced into higher cost subprime loans or even predatory
products. By moving quickly to modernize FHA, we can provide a
safe alternative for hundreds of thousands of lower income
credit-worthy borrowers looking to either purchase a new home
or avoid foreclosure.
It is true that FHA cannot help all homeowners who are in
the red, but it can help a good portion of them. Last month,
both Chairwoman Waters and I introduced legislation aimed at
reforming the FHA program. The bill that I introduced, H.R.
1752, is virtually identical to H.R. 1521, which passed the
House by an overwhelming vote of 415 to 7 on July 25, 2006.
H.R. 1752 is the same as the bipartisan compromise that was
agreed to by Chairwoman Waters, Chairman Frank, and then-
Chairman Mike Oxley in the last Congress. Given the
overwhelming vote of 450 to 7, I had hoped that we could
introduce the same bipartisan FHA modernization bill and move
it expeditiously to the House Floor. The bill that I introduced
incorporates all of the bipartisan agreements that were reached
last year regarding how risk-based pricing and lower down
payment requirements should be implemented. While the Frank-
Waters bill implements some risk-based pricing and lowered down
payment requirements, I am concerned that it will limit the
flexibility that the FHA needs to serve additional low-income
borrowers or to respond to ever-changing market conditions.
That lack of flexibility translates into fewer borrowers being
eligible for FHA assistance under the Frank-Waters bill.
Let me outline several of the differences between last
year's bill, which I again introduced this year, and the Frank-
Waters bill. First, the Frank-Waters bill permits only first-
time home buyers to participate in a new low and no down
payment loan program. My bill allows any FHA-qualified borrower
to participate in the new FHA low loan program. Second, the
Frank-Waters bill authorizes the FHA to implement risk-based
pricing but it leaves in place the current outdated premium
caps of 2.25 percent up-front and 0.55 percent annually. And
the zero and lower down payment loans would have the higher
caps. My concern is that these limits on premium caps will
prevent FHA from serving riskier borrowers who could be
prudently served by charging a slightly higher premium. With
the flexibility to charge slightly higher premiums, FHA would
be able to serve borrowers with the lower FICO scores who are
currently being served only by the subprime market at very high
interest rates. With FHA mortgage insurance, lenders will
charge borrowers the market mortgage interest rate. Without FHA
insurance, they have no choice but to turn the borrower away or
to charge for a risk in an increased mortgage interest rate.
Just like last year's House-passed bill, my bill implements
premium caps, and enables the FHA to reach down and serve
riskier borrowers, but in a prudent manner. The up-front
premium is limited to a maximum of 3.0 percent, and the annual
premium to a maximum of 2.0 percent.
Third, my legislation includes another bipartisan agreement
reached last year, the automatic reduction of annual premiums
to no more than 55 basis points for loans that remain active
after 5 years. Automatic premium reductions can be a good
thing. They can reduce refinancing and perhaps some defaults
and foreclosures as well. In contrast, the Franks-Waters bill
requires the refund of excess up-front premiums charged to
higher risk borrowers, those with FICO scores below 560. I am
concerned that this provision could have unintended
consequences of limiting the number of borrowers that could be
served by the FHA program because it may require initial
premiums to be even higher. The refund provision would also be
very difficult to implement. It is inevitable in an insurance
fund that lower risk borrowers will subsidize higher risk
borrowers. Refunds of this nature undercut the concept of
insurance and is the logical equivalent of a healthy person
requiring a 100 percent refund of his or her health insurance
premiums or a driver who does not get into an accident
demanding his car insurance back.
If I could be yielded the 5 minutes, and then I will yield?
Chairwoman Waters. Without objection.
Mrs. Biggert. Thank you. Finally, the most significant
difference between the bill I introduced and the Frank-Waters
FHA reform proposal is of greater concern to me and many of my
colleagues and that is the inclusion of a provision that
creates a funding place holder that envisions using FHA funds
to support the creation of a national housing trust fund. While
the other provisions that I have mentioned are the ones that
represent significant differences between our introduced bills,
using FHA program funds to create a housing trust fund is the
most objectionable, and I believe that it is not an appropriate
use of FHA funds. Taking funds out of FHA and using them for a
purpose unrelated to its core mission would threaten the
solvency of the FHA fund and its ability to pay out on
insurance claims.
There is general agreement on the need for FHA
modernization legislation. Furthermore, there is no doubt that
the FHA program can be an important tool for the lower income
borrower. The legislation that passed the House last year and
was supported, again by both Chairwoman Waters and Chairman
Frank, would make FHA more efficient and competitive with
subprime industry by decreasing premiums for borrowers,
permitting no down payment loans, and increasing access to
ownership. Removing the housing trust fund provision will allow
us to work together on a bipartisan bill that can be moved
expeditiously to the House Floor and that will receive
overwhelming bipartisan support. We can even put it on the
suspension calendar. The quicker we pass FHA reform in the
House, the quicker we can send it to the Senate, and get it
onto the President's desk, and I think relief is needed now.
I want to commend Chairwoman Waters for her timeless
efforts last Congress to pass FHA reform legislation by such an
overwhelming bipartisan vote, and I look forward to working
together to again achieve this goal. Again, thank you for
holding this important hearing, and I look forward to hearing
the testimony today from our distinguished witnesses.
And I will yield. How many minutes do I have left?
Chairwoman Waters. You have about 2 minutes.
Mrs. Biggert. Okay, I will yield 1 minute to Mr. Miller and
1 minute to Mr. Neugebauer. The gentleman from California.
Mr. Miller of California. Thank you. It is good to have you
here today. We are looking at a situation in the marketplace
where we need to utilize every tool we have available to
provide options for people to acquire a home. In areas such as
California, we have an FHA program that has been available for
70 years. And if you look at the drop in utilization in
California because we are a high cost area, it is really
stunning. In 2000, FHA insured 109,074 mortgages in California.
In 2005, it was 51,037. In my district alone in 2000, we had
7,000 mortgages. It dropped to 80. You are looking at a 99
percent drop in an area that arguably needs the benefit of an
FHA program or a conforming program as much as any other State
in the Nation does. In fact, in high cost areas it is much
harder for people to get into--is my minute up? Thank you very
much.
Chairwoman Waters. I think you have 1 additional minute,
Mrs. Biggert. Who did you yield that to?
Mrs. Biggert. The gentleman from Texas, Mr. Neugebauer.
Mr. Neugebauer. Well, thank you, Madam Chairwoman and
Ranking Member Biggert. I think this is an important discussion
we are having. We have been having a lot of discussions about
subprime lending and making sure that we do not impact the
marketplace with actions that we take here in Congress,
certainly making FHA more relevant is a very important piece of
policy that we are considering. Homeownership is at an all-time
high. We need to continue to provide the ability for folks to
do that, to experience the American dream.
I am concerned about a couple of things, one in the new
bill is I want to make sure that we make available, being able
to participate in FHA programs a broader spectrum and making it
less onerous for some of our mortgage brokers to participate in
some of the requirements that we are putting on them. In our
previous bill, we had some provisions in there to make it
easier. And then the second piece of it is we need to make sure
that this new program is actuarially sound. We do not need to
be going down a road where we jeopardize the integrity of the
FHA program. And one of the things that was mentioned is it
looks like we are going down the road now of another extortion
from an organization for money for purposes other than what
that organization is proposed and chartered to do. And creating
other funds and taking money out of FHA when we are embarking
down a road of a new program, I think, is a very dangerous
precedent.
Thank you.
Chairwoman Waters. I recognize the gentleman from
Massachusetts, Chairman Frank, for 5 minutes.
The Chairman. Thank you, Madam Chairwoman. I work with my
friend from Texas on a lot of issues, and there are a lot of
areas where this committee can cooperate across party lines,
but nowhere have the differences that do exist between the
parties been made more clear than in his last statement when he
described the effort by the gentlewoman from California and
myself to provide more funding for affordable housing as
``extortion.'' The FHA is a Federal agency created by Federal
law. And the notion that it is ``extortion'' to try to use some
of the surplus funds it has been generating to help provide
affordable housing greatly defines the difference between the
parties.
I noticed that the gentlewoman from Illinois--who
temporarily had to leave and who has been a very constructive
member also-- said, ``Well, we should not be using FHA funds
for other purposes.'' Maybe she missed this, but during the
entire period of Republican majority rule, that is exactly what
was happening. The FHA was producing surpluses which went into
the general treasury, and they have been used to support such
non-housing related issues as the war in Iraq, nuclear testing,
or anything else the Federal Government does. This notion that
money should not come from the FHA for other purposes is a very
new one because the FHA has been a money maker for the rest of
the Federal Government in the past. Now it is true that many of
us--including the gentlewoman from California and I--believe
that if the FHA continues to generate surpluses, and we
certainly will guarantee that first claim on any monies goes to
keep the FHA functioning, but the question is should the
surpluses go into the general treasury and help offset
everything else the Federal Government does, such as farm
subsidies, the war in Iraq, bridges to nowhere, and all of
those other purposes for which it was put, or should we target
it towards affordable housing?
The gentlewoman from Illinois also expressed surprise, and
to some extent disappointment, that the gentlewoman from
California and I have a different version of the bill than the
one that passed last year. And the gentlewoman from Illinois
correctly noted that last year the gentlewoman from California
and I supported a different version of the bill but, again,
maybe she forgot something happened in the interim: the
election. The gentlewoman from California and I are strongly
committed to trying to help homeownership, to bring down costs
for housing in general, and to help the middle class, but also
to do something about that very significant fraction of our
population who are not adequately housed, and who that pay too
much for housing. Last year we did the best we could, we were
not in the majority. We were being constructive. In fact, I
think you could say we were setting a good example for our
friends. When you are in the minority, you recognize that you
are not going to write the major pieces of the bill and you
cooperate to get the best deal you can. That is what the
gentlewoman from California and I did. I know there have been
people who have been surprised that we have not lived up to
their stereotypes and that we have, in fact, been cooperative
and conciliatory given the circumstances. Things are different
now. And there are a lot of things that the parties have in
common, but we have always had the view that we should be
reaching out to help people who are in economic distress and
now that we represent the majority, we plan to do that.
And let me talk specifically about the terms under which
the FHA would be lending to people with more credit risk. Yes,
the bill that we are supporting says that if you or someone
with higher credit risk and a lower credit score borrows the
money and diligently pays it back, you should not, in the end,
be charged more by your own Federal Government than someone
making 3 times as much money as you. That is the radical
proposition which we are advocating. We recognize there is a
risk, and we said, okay, there will be some higher up-front
premiums. But we say that if you meet your obligations, if you
work very hard and pay back what you owe, why should you pay
more than somebody who makes far more money than you because
other people in your situation previously defaulted?
Now the gentlewoman said, ``Well, that rule was strict,
what is available?'' No, only if you consider the higher credit
risk people to be a closed pot. I, along with the gentlewoman
from California, have been preaching, and I think finally we
are going to win and we are going to admit California,
Massachusetts, and New York to the Union. We are going to allow
them to fully participate in Federal housing programs: FHA,
Fannie Mae, and Freddie Mac. They have been somewhat excluded
for some time. That will generate some revenues, and we intend
to take some of the additional revenues generated within this
set of programs and use them to make the radical proposition--
that if you are of a higher credit risk and you borrow money
and you get your mortgage insurance from the FHA and you pay
back every penny you were supposed to, that you will not be
charged more by your own Federal Government--true. That is the
best thing we can do about the subprime market.
And there was also a comparison to insurance. Well, this is
the Federal Government. I do not think that the Federal
Government ought to--I know there is a dispute about whether or
not we should help the poor at the expense of the wealthy but
is there really an argument that we should penalize lower
income people by charging them more for exactly the same
mortgage insurance as someone who makes 3 times as much because
somebody else who makes the same amount they do did not pay it
back? So, yes, that is what we are saying. We are saying that
if the FHA is to generate surpluses, as it has for 12 years,
rather than that money going for earmarks in the agricultural
surpluses and wars and trips and other things, it should be
recycled to some extent for affordable housing, which does help
everybody as you add to housing. One of the problems we have
had is a housing program whereby we have only done vouchers so
we have added to the demand for housing without increasing the
supply. And we also believe that in dealing with people in the
subprime category, we should extend to them the ability to go
to the FHA and be helped. And if they make their payments like
anybody else, they should not be charged more than anybody
else.
I thank the gentlewoman for her leadership, which has been
so strong in this area.
Chairwoman Waters. Thank you very much, Mr. Chairman. All
time has been exhausted on both sides. We are going to move to
our panel. On our first panel we have the Honorable Brian D.
Montgomery, Assistant Secretary for Housing, Federal Housing
Commissioner, U.S. Department of Housing and Urban Development.
Welcome, Mr. Montgomery.
STATEMENT OF THE HONORABLE BRIAN D. MONTGOMERY, ASSISTANT
SECRETARY FOR HOUSING, FEDERAL HOUSING COMMISSIONER, U.S.
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Mr. Montgomery. Thank you very much, Chairwoman Waters,
Chairman Frank, and Ranking Member Biggert, for inviting me
here today to testify about the modernization of FHA. I want to
begin this morning also by thanking not only just both of you,
but again Chairman Frank and Ranking Member Bachus, for your
strong leadership on this issue, and that goes for the entire
committee as well for allowing me to testify on how best to fix
FHA.
Yes, last year, our hard work, our collective hard work
paid off to the tune of 107 cosponsors. They were evenly split
between both sides of the aisle. Yes, and a resounding 415 to 7
vote on the Floor of the House. Well, this year, as we all
know, we have two bills pending before this committee. Both
bills would raise loan limits in high-cost areas. They would
eliminate FHA's antiquated down payment requirements. And they
would allow, to varying degrees, risk-based pricing to occur
and eliminate the burdensome cap on reverse mortgages. Yes, we
look forward to working with this committee on a bipartisan
basis like we did last year in helping craft a comprehensive
bill that would provide underserved Americans with a safe
mortgage at a fair price. And speaking of fair price, when
borrowers pay FHA insurance premiums, they are essentially
buying a prime interest rate. An FHA-insured loan is generally
3 to 4 percentages lower than a subprime loan. When comparing
these two loan types on a $225,000 mortgage, this rate
differences translates into an average savings of $300 a month.
That is $137 over the life of the loan.
In recent years, the primary users of many subprime loans
have been minority and lower income first-time home buyers,
many of whom struggle to qualify for prime loans due to
underwriting or down payment requirements. It is our belief
that had FHA had a minimum, and I say a minimum, amount of
flexibility like that proposed in the FHA modernization, we
could have better served many of these borrowers. The impact on
African-American and Latino borrowers has been particularly
profound. For instance, according to our 2004 numbers, 40
percent of African Americans and 23 percent of Latinos pay an
interest rate 3 percentage points higher than market rate.
As you all know, the volume of subprime lending is
declining rapidly. While this may appear to be good news, the
departure of a strong subprime presence means many lending
institutions may turn their backs on lower income borrowers. In
order to offset this thinning of credit, there needs to be a
mortgage alternative we like to call, ``Back to Basics,'' which
would provide a wide swathe of lower-income borrowers with the
credit and loan options they require, and that is a modernized
and reinvigorated FHA.
As I mentioned before, we are seeking the following
changes. First, we are proposing to eliminate our complicated
down payment calculation and 3 percent minimum cash investment
requirement. Second, our proposal seeks to provide FHA the
flexibility to set insurance premiums commensurate with the
risk of the loans. In so doing, we could reach deeper into the
pool of prospective borrowers while protecting the financial
soundness of the FHA mortgage insurance fund.
Lastly, I would like to mention the proposed increase in
FHA loan limits. By increasing the loan limits to 65 percent
and 100 percent of the conforming loan limit, which we support,
FHA would once again be a player in high cost areas, regions
that have previously been out of play, such as the entire State
of California and most of the Northeast. What is more, raising
the floor to 65 percent of the conforming loan limit has the
added benefit of giving families better access to newly
constructed housing, which is on average more costly.
Finally, before closing, I would like to take a moment to
assure you of FHA's readiness to proceed. Regarding our
capacity to manage our book of business, the inspector general
recently completed its annual audit of FHA's financial
statements. In short, we received a clean opinion. In fact,
this marks the 14th consecutive year of clean audits. However,
it is the first in which absolutely no material weakness were
identified, that it never happened. What this means is that
when FHA reports on its financial position at the end of each
year, the reports are accurate and fairly portray the financial
status of the FHA mortgage insurance fund. With such a long
history of success, and the continual improvements to our
processes, I am not sure why some people question our ability
to manage the FHA funds. And in light of the recent GAO report
taking us off the high-risk list for the first time since 1994,
there should be no doubt--no doubt--that we can manage our
programs. If we were not fiscally sound, trying to implement
change would spell disaster but this GAO report, as well as our
most recent audit, reveals that FHA is both financially stable
and consistent.
In conclusion, I believe that FHA should continue to play a
key role in the national mortgage market, and I am here today
to make the case for changes to the National Housing Act that
will permit us to continue to fulfill this critical mission.
I want to thank you again for providing the opportunity for
me to testify today.
[The prepared statement of Mr. Montgomery can be found on
page 65 of the appendix.]
Chairwoman Waters. Thank you very much, Mr. Montgomery. I
recognize myself for questions for 5 minutes. As has been said
over and over again, and as was said by Mrs. Biggert this
morning, we did a fantastic job of getting bipartisan support
for FHA modernization in the last session of Congress, and I am
looking forward to cooperation from both sides of the aisle so
that we can move this legislation and open up opportunities for
people who have been thrown into the subprime market and who
find themselves certainly in great difficulty now.
I have heard some of the concerns that were registered by
Mrs. Biggert, which I suppose caused her to want to carry a
bill to make sure those concerns were addressed. Do you agree
that we need to do anything differently than we did in the last
bill? If so, what? And I would like for you to specifically
comment about our housing trust fund and this legislation.
Mr. Montgomery. Thank you. Let me discuss the trust fund
first. To be honest, we do not know enough yet about how this
trust fund would be structured, where the funds would go. I,
speaking for FHA, have IT system requirements as the world's
largest mortgage insurance company, government mortgage
insurance company, and the world's largest mortgage company for
minorities. I would like to be able to have the ability to get
professional staff that would enable us to carry out our
mission, especially in a reformed FHA, and to be able to pay
them similar to other government agencies do. So speaking
selfishly for FHA, I could use those funds to help do some of
what I just articulated. So I will say until we know more about
how the fund would be structured, I certainly appreciate the
concept, and am very sympathetic to the concept, but until we
know more about it, it would be difficult for us to say that we
would wholeheartedly support it.
Chairwoman Waters. Do you agree that there is a housing
crisis?
Mr. Montgomery. I have said publicly many times that there
is a housing crisis in this country, and I have said publicly
in other settings, in particular for persons with disabilities
and for the elderly.
Chairwoman Waters. Do you agree that FHA modernization
could open up opportunities for many folks who could not be
serviced or who get thrown into a subprime market that places
them at great risk?
Mr. Montgomery. Absolutely.
Chairwoman Waters. Do you agree that it is important that
this bill moves without any obstruction so that we can have a
reformed FHA?
Mr. Montgomery. If I could respond to that, and also to
your first question as to the differences. Under the premium
structure, Madam Chairwoman, that you have versus the Biggert
bill, by having a cap of 2.25 percent versus a cap of 3
percent, that precludes us from being able to help lower
income, higher risk borrowers because of the actuarial
requirements of the mutual mortgage insurance fund. While I can
understand why you would have your cap, and Mrs. Biggert has
hers, we would propose, and so support as we did last year, to
have the maximum flexibility. And that is one of the reasons
for some of the predicament that we are in on the subprime--to
be able to go to 3 percent because as you heard me say
previously, looking at the difference between FHA even at 3
percent, by the way, the difference between 3 percent--1
percent and 3 percent on a $225,000 loan is about $26. And you
heard me say with the subprime borrowers at 3 points above par,
the difference on that $225,000 home is about $300 a month. So,
again, we think by having the 3 percent, would some borrowers
like that? It gives them flexibility. We can reach lower
income, lower FICO score borrowers, including many subprime
borrowers whom we cannot reach today.
Chairwoman Waters. But we are going to agree that we are
not going to let that difference stop this bill, is that right?
Mr. Montgomery. I am sorry, ma'am?
Chairwoman Waters. We are not going to let that difference
get in the way of getting a bill passed and onto the
President's desk?
Mr. Montgomery. Well, since I do not have a vote in this
process, I will let you all decide that. In all candor, Madam
Chairwoman, everybody has worked so hard on this bill and that
is the good news here. We all know we need to modernize and
reinvigorate FHA, but we feel strongly that we need the ability
to reach higher risk, lower FICO score borrowers and we can do
that at 3 percent--more of them I should say, more of them than
we can at 2.25 percent.
Chairwoman Waters. Thank you, Mr. Montgomery. And I will
recognize our ranking member, Mrs. Biggert, for 5 minutes for
questions.
Mrs. Biggert. Thank you, Madam Chairwoman. Commissioner
Montgomery, could you explain the importance of allowing FHA to
assess the risk of each individual borrowers when setting
mortgage insurance premium prices?
Mr. Montgomery. Well, that is critical. We are an insurance
company; we are in the risk business. We are in the business of
helping lower income borrowers with little savings for a down
payment and perhaps some blemishes on their credit. That is
what we have done for decades now. But we take very seriously
protecting the solvency in the FHA fund so we put each risk
category through a rigorous test, through an actuarial review.
Our Office of Evaluation conducts that. And it is critically
important for us to be able to identify any number of different
variables for all borrowers. By the way, that pool of borrowers
that we have profiles that we can look at is some 4.5 million
or so different risk profiles.
Mrs. Biggert. How does this type of price structure allow
FHA to help more low-income borrowers?
Mr. Montgomery. Well, as you heard me mention previously,
well, let me add a little bit to that. Let's say the up-front
premium is 1 percent on a $225,000 house. Your payment for the
up-front mortgage insurance is about $14--$13.90 and change. At
2 percent, you are at about $26. And at 3 percent, you are at
roughly $39.95 or so. So the difference is not much. Now the
$225,000 figure in this room sounds like a low amount. But as
Congressman Neugebauer from Texas knows, that is a big home in
the South and in the Midwest and in other parts of the country.
As a matter of fact, 75 percent of our mortgages currently are
below $150,000. And the average cost on average, the median for
FHA, is somewhere around a $130,000 mortgage. So the $225,000
example is half that for the lower income--or the lower priced
home.
Mrs. Biggert. If the bill that we had last year was enacted
tomorrow, how quickly could you implement the reforms?
Mr. Montgomery. Well, like we did last year, and we are
doing this year, in some cases we are preparing for a victory
party let's say that we may not have. I say that in that we
cannot wait. Hopefully, we will get a reformed FHA bill
through. We cannot wait until that moment in time to say,
``What do we do now?'' So we were meeting last year, and we
have been meeting this year with our IT staff. We are prepared
to make the changes to our underwriting system to what is
called our total scorecard. And to begin, we also have been
putting together what the training for lenders would look like.
We would be ready on day one. We would be more ready on day
two, but we will be ready on day one.
Mrs. Biggert. Okay. I understand that FHA has nearly the
same delinquency rate as the subprime market but the
foreclosure rate is much lower. Could you explain what tools
you use between the delinquency or default and foreclosure and
whether this accounts for the lower foreclosure rate?
Mr. Montgomery. Well, the subprime market has a foreclosure
rate twice that of FHA. And, yes, our 90-day delinquent rates
are within points of each other. I think that the fact that our
foreclosure rate is half points to your point and that is, yes,
we have a very vigorous loss mitigation program, we require
lenders to reach out and to work with borrowers who are in
trouble and, yes, we saved 75,000 families last year--FHA-
insured families from foreclosure. I think that point is more
important today than probably at any point in the last several
years, especially as we see many other families who have
subprime products facing some financial crisis in their life.
Mrs. Biggert. How many additional borrowers could you serve
if last year's House bill was enacted?
Mr. Montgomery. Well, based on last year's bill, we
expected our volume to essentially to double between now and
2012, not including the reverse mortgages, by 2012 we would be
serving 1.2 million borrowers under FHA, about double what we
are today.
Mrs. Biggert. How many people could you serve if nothing is
done, if there is no change, and we do not have any
modernization bill?
Mr. Montgomery. Well, right now we are serving roughly
500,000 borrowers. As you know, our volume of business has been
in a free fall for about 3 or 4 years. The good news is that,
through some process improvements, we have sort of stopped the
hemorrhaging, but we think again in Mr. Miller's State and
others, the fact that they cannot use this product did not make
any sense to us. That is why we want to improve it.
Mrs. Biggert. Is there a difference in how many people you
could serve if the Waters-Frank bill was enacted versus last
year's bill or the current situation?
Mr. Montgomery. It would be more difficult at the 2.25
percent increase for us to serve borrowers with incomes less
than $45,000 a year and with FICO scores below about 600.
Because of the actuarial review that we conduct and, yes, we
are an insurance company, risk is our business, we would have
to probably raise the cash investment on those types of
borrowers above 3 percent.
Mrs. Biggert. Thank you. I yield back, Madam Chairwoman.
Chairwoman Waters. Thank you very much. Are there any other
members who wish to be recognized for questions for Mr.
Montgomery? Mr. Cleaver, in order of seniority unless you are
not ready, then we will go to Ms. Maloney.
Mrs. Maloney. I defer to him because he was here first.
Chairwoman Waters. But he said it is okay.
Mrs. Maloney. Okay. Well, first of all, I just want to
really congratulate Chairwoman Waters and Chairman Frank for
moving so swiftly on this, first going to the Katrina area and
moving a GSC bill that is going to put some housing money out
of the government into the ground to help the people. And
really revitalizing the FHA program, the Expanding Home
Ownership Act is part of the puzzle we need to help the
predatory lending tsunami and making it available to people and
really making it more flexible. There are ways that we could
change it so that it is available and more flexible to people
in need. And this bill goes a long way towards doing that. And
I really cannot thank the chairwoman, the timing of it could
not be more important to get this going forward, and to have
had a bill with a fair and balanced approach.
One area in the GSA/GSE bill that Chairwoman Waters moved
forward, Mr. Baker and I added daycare, which is in a crisis in
this country. It is not there. People are opening up their
homes for daycare, licensed daycare. In New York City, there is
a waiting list of hundreds of thousands of people. It is not
there and it takes a man and a woman to put the food on the
table and pay the rent now and too often in American society.
So both are working and we need more daycare. And I am going to
be working on an amendment that would be part of FHA, expanding
it in a certain framework, so that daycare loans and financing
could be there in a flexible way not only for new construction
but for homes that are going to have licensed daycare in it.
That is the only daycare that is growing in New York is
licensed daycare in their homes. And I would like the
gentleman, if he could, to respond to this concept? We added it
to the GSE bill as one of the areas that you can get secondary
market financing. It is a creative way to get money into the
system to help with this critical issue that is confronting
families of America.
Mr. Montgomery. Thank you very much for your question.
Whenever I hear the word ``daycare,'' my ears perk up because I
have a 5\1/2\ month old at home. Conceptually, Congresswoman,
certainly we would love to hear more about how your bill would
work and certainly understand the plight of many lower income
families and how they juggle both work and taking care of their
children. We certainly look forward to having those discussions
with you in that area.
Mrs. Maloney. Secondly, on the subprime crisis that we are
confronting, I think we all agree that preserving homeownership
is just as important as expanding it. And what in your opinion,
whether it is in this bill or through another vehicle, should
Congress do to make sure that we help those people who are
being affected by the current subprime crunch, many of whom
were exploited, they were targeted? First of all, how do you
think it could be incorporated in your bill or rather in
Congresswoman Water's bill to expand the way the FHA could help
people restructure loans in crisis or any other ideas that we
can have as we move forward to help people stay in their homes?
Mr. Montgomery. The good news is that we are helping
subprime borrowers today. As a matter of fact, we are on track
this year to help people getting out of a subprime loan or
refinancing into an FHA loan, we are on track to do
conservatively about 60,000 this year with the existing FHA
structure. Many families on their own obviously have figured
out they are in a predicament and reached out to us for help.
But we think the best way relative to refinancing is to have
that latitude for people getting out of a subprime loan into an
FHA loan, to have the latitude to go to a 3 percent up-front
premium because these would be some higher risk borrowers.
Mrs. Maloney. Well, specifically, one idea that I have, or
one hurdle that is out there I have read about, is that some
homeowners who would otherwise make good candidates with an FHA
loan with a decent track record on time payments may be barred
from refinancing with FHA if they are not current on their
existing loan. Oftentimes, because they are suffering from the
payment shock of the interest rate reset, jumping from the
teaser rates to a higher level, do you think looking into
changing this requirement might benefit homeowners and FHA if
it could be done in a way that is responsible?
Mr. Montgomery. Absolutely and that is something we are
looking into today. I discussed at Tuesday's hearing, since it
would present a new risk category for us, that the Credit
Reform Act of 1990 requires us to put that new risk category,
that would be delinquent borrowers but for the reset they had
good credit let's say for the previous 12 months, we are
looking at that right now.
Mrs. Maloney. And, lastly, because my time is running out,
could this change be done administratively by HUD or should
there be a legislative fix for it?
Mr. Montgomery. The Credit Reform Act requires that we put
it through a stress test. We are doing that right now. And I
would have that authority based on the outcome of the review.
Mrs. Maloney. Okay, thank you very much.
Chairwoman Waters. Thank you. Mr. Neugebauer?
Mr. Neugebauer. Thank you, Madam Chairwoman. Commissioner,
I appreciate your being here, and I think the intent of this
committee is to make FHA a more relevant factor in the
marketplace. One of the concerns I have is when you were
talking about flexibility a while ago, our financial markets
are very sophisticated today. And one of the reasons I believe
that your business is down is due to your inability to really
respond to market conditions. I want to go back to the rate
thing just a little bit. Now, it is my understanding if you
initiate some of these new programs, those programs will be
bracketed as a category and you will have to actuarially
measure what your loss ratios are on these new types of
products that you are putting out. And doesn't it make sense
for you to have the flexibility to be competitive to be able to
price those based on what your actuarial findings actually are?
Mr. Montgomery. Absolutely, Congressman, I think the FHA
Commissioner should have that flexibility.
Mr. Neugebauer. And doesn't it also make sense that if in
some cases, if those certain types of products that you are
doing are actually performing better, you have the flexibility
to actually lower those premiums, that if in some cases, those
certain types of products that you are doing are actually
performing better, you have the flexibility to actually lower
those premiums, and obviously make them more affordable for
some of our borrowers?
Mr. Montgomery. Again, yes sir, we certainly agree, and in
fact had the Commissioner, me, or whomever at the previous
flexibility to adjust premiums, look at today, we are still
discussing having that flexibility now almost a year to the day
from last year's hearing. I suspect we could have helped a lot
more lower income borrowers during that year period had we had
that flexibility.
Mr. Neugebauer. And I want to go back to a little bit of
some things about, whether it is a housing fund, what we are
talking about is retained earnings, we are talking about
profits. What do you do--if FHA begins to make more money and
stay on the same financial course, what do you do with the
earnings? And if we are talking about distributing, I guess we
feel like in some cases those are excess earnings. I have never
made earnings in excess before but I would like to get to that
point. But one of the things that I think is important is if
you are managing an entity that is trying to move towards an
affordable housing goal, doesn't it make sense then to be able
to maybe make some investments internally within FHA and
possibly give you the ability to create some new kinds of
products and programs rather than having to worry about those
monies being taken out arbitrarily from FHA?
Mr. Montgomery. As I referenced earlier, if we had the
ability to make some of the IT improvements, one of the
programs that they use is computer languages that you and I
probably had when we were in college that most people under 30
have never heard of--Fortran and COBOL. We have a fantastic CIO
but we cannot be the priority in every category. And so, yes,
there are some improvements that we need to make and it would
be good to have the flexibility to do so.
Mr. Neugebauer. You and I had this conversation, I think,
when we were talking about the last bill, and that is that you
depend upon the originators to go out there and to sell your
product. While you can put the product together and you have
something, the ability for FHA to expand their business is
going to depend on, number one, the acceptability of the
product, and number two, the availability of people to go out
and originate those, is that correct?
Mr. Montgomery. That is correct. We do allow and have
brokers and lenders and other certainly sell our products so to
speak, we require that.
Mr. Neugebauer. And one of the things that is not in the
new bill that concerns me is the fact that we had put a
requirement, we had talked about allowing for some of the
smaller originators to, rather than having to have an expensive
audit, and we all know with today's environment, we have had a
little dose of Sarbanes-Oxley, we know what the cost of these
audits, they have skyrocketed. And for our small business
people who want to have a little small mortgage business, that
makes it a very difficult process for them. Would you support
being able to look at an alternative, a bond or something like
that, for some of our smaller originators to be able to
participate in your programs?
Mr. Montgomery. We have had previous discussions on the
bond and relative to the responsibility to protect the solvency
of the mutual mortgage insurance fund, a surety bond, while
good at the State level, doesn't give us a lot in that respect.
But let me say though that I am very sympathetic, Congressman,
for the mortgage brokers here, aware of that, to those small
businesses. I go out and I attend their conferences, I travel a
lot, I meet with mortgage brokers and when a small business, a
father and son, a mother and daughter, or two sisters,
whatever, who are mortgage brokers and love it, taxes say we do
not make a lot but we cannot use the FHA product. It doesn't
make any sense to me for a government program to be so onerous
so that small businesses cannot use it. So we are where we need
to be in that respect yet although we have discussions with the
mortgage brokers and there are a couple of things that we have
been discussing and ultimately we allow more mortgage brokers
to use the program.
Mr. Neugebauer. I think it is going to be imperative that
we do that.
Chairwoman Waters. Thank you, your time has expired. Mr.
Cleaver for 5 minutes.
Mr. Cleaver. Thank you, Madam Chairwoman, and thank you for
scheduling this meeting and for having the initiative to push
us toward transforming the FHA. Mr. Montgomery, like a lot of
people, Baby Boomers at least, I came out of college and bought
my first home with FHA, an $18,000 home. And at that time,
everyone I knew buying homes were going through FHA. I think it
served its purpose well. And, of course, today in your
testimony when you talked about the drop in the FHA share of
the market in Chairwoman Waters' district, that just is mind-
boggling. What I would like to ask or find out from you is
Freddie Mac has said that they are going to buy up to $20
billion in subprime mortgages. You cannot compete with the
giants but is there a way, a possibility, for you to beef up
your portfolio, is it possible for FHA to buy any of the
subprime mortgages?
Mr. Montgomery. Thank you, sir. As I mentioned here in this
very room on Tuesday during the hearing, we are helping
subprime borrowers today. You may have heard me reference
earlier that we are on track to assist, we think, about 60,000
conservatively this year who are getting out of a subprime loan
in FHA. With the reformed and modernized FHA, especially to
have flexibility on the premiums, there is no doubt in my mind
we can assist many more. Now that is not to say we are going to
throw open the barn door so to speak. We have to protect the
solvency of the Mutual Mortgage Insurance Fund so many
families, all of whom, would still have to go through our
eligibility and underwriting criteria.
Mr. Cleaver. There is a lot of discussion going on about
Freddie Mac, Fannie Mae, and the size of their portfolio, and
it seems to me that the best way to reduce that portfolio to
bring it into some kind of normality would be for FHA to
increase its share of the market. If you had an opportunity to
write on that sheet of paper with your left hand, what would be
the best thing that could happen for FHA to begin to rise again
what would it be?
Mr. Montgomery. Well, certainly upgrading our IT systems
and being able to pay some of our professional staff more. But
as far as the retail thing, being able to help borrowers having
the maximum flexibility on the up-front premiums and on the
annual premiums would allow us to help higher risk, lower FICO
score borrowers in an actuarial sound manner. And, again, we
are helping many today and it is our strong belief we can help
many more with a reformed, modernized FHA.
Mr. Cleaver. But what could this committee do?
Mr. Montgomery. Pass an FHA bill.
[Laughter]
Mr. Montgomery. I normally don't get that question so I
appreciate the efforts to try and pass the FHA bill.
Mr. Cleaver. That is good. That is the best response. Is
there a plan to increase multi-family loan fees?
Mr. Montgomery. Relative to the OA budget, there is a
proposal in there different from the proposal last year that
was rescinded to increase in some instances the fees for, we
are talking about multi-family here, to increase their
insurance premiums. That will go out for public comment here in
the next several weeks. It has not happened. I want to stress
that. And please understand that we will put it out for public
comment and be mindful of any comments that we receive.
Mr. Cleaver. Thank you, Madam Chairwoman. I yield back the
balance of my time.
Chairwoman Waters. Thank you. The gentleman from
California, Mr. Miller, for 5 minutes.
Mr. Miller of California. Thank you, I will take blame for
the security bond language in last year's bill because I had it
put in there. And I did it for a reason--mortgage brokers
originate more loans than any other group in the marketplace
out there. And yet if you look at the cost prohibitive, time
consuming financial audits and net worth requirement, it limits
brokers' participation in the FHA program. And you wanted a
minimum amount of flexibility, which I think is an
understatement, I want to give you a maximum amount, but in
some of these areas where we are talking about instead of as
some might transfer assets, we all know how this is done, you
can transfer assets and make your audit look really good,
assets disappear, in the construction industry, we have been
required for years to put up surety bonds and it has worked
very, very well. And if it is a cash audit or it is a surety
bond for the given amount of money, which equates to the same,
one is accessible if there is a problem, I do not understand
why we would limit participation in a program that I will state
from my area when it has dropped 99 percent in 5 years, you and
I both look and say there is a severe, severe problem here. And
when you look at the largest group of loan originators in this
country and we say how do we also provide flexibility for them
as we are trying to provide for you and with that flexibility
safeguard the requirements so we are not saying, okay, just do
it without any safeguard. But somebody is going to write a
surety bond, I know people who write surety bonds and they do
not go out there and arbitrarily write a surety bond without
knowing they have something to go after if that occurs. So why
do you think that we cannot structure a reasonable approach to
including more individuals to be able to work with FHA and
provide an alternate such as surety bond?
Mr. Montgomery. We are trying to find a reasonable
approach.
Mr. Miller of California. But you are willing to work?
Okay, Maxine, you heard that, he is willing to work, so we need
to look at this, okay. That is a good approach.
Mr. Montgomery. Just on the surety bond there is no
national standard for surety bonds, they vary from State to
State. But I do want to stress again that we are very
sympathetic--
Mr. Miller of California. Well, that is why I have been
fighting for optional Federal charters for the insurance
industry because every State requires a different base, some
allow third party insurers, some do not, so I do not disagree
there, but if the bond is written in a fashion acceptable, I do
not know why that would be precluded from the conversation?
Mr. Montgomery. Well, in reference to your previous comment
about being sympathetic and discussing with them other options,
we are having those discussions as recently as several weeks
ago with the mortgage brokers.
Mr. Miller of California. Okay, so let's say that is still
on the table and we can still do that. If you look at the
situation we are facing in the mortgage market today, I think
it is profound how we need to reform FHA. What are the benefits
FHA--do you think an FHA program has over other options that
might be available in the marketplace today?
Mr. Montgomery. It is a back-to-basics approach. We have
never had anybody call our toll-free number and say, ``I do not
understand my FHA loan.'' Your first payment is equal to your
last payment, no pre-payment penalties, no teaser rates, no
hidden costs. The benefits are far more than what some of these
other loans--
Mr. Miller of California. So you think the FHA can really
complement the private sector in providing a broader base for
your project to be applied?
Mr. Montgomery. Well, we are a government mortgage
insurance program that works in partnership with lenders,
originators, and brokers. To me it is the best of both worlds.
You have a private delivery system and the beauty of a
government program with a 73 year track record.
Mr. Miller of California. And so if we are going to do
something that could likely double the business you currently
generate let's say, which we think you are being held back
tremendously, a very safe program, it works, it's beneficial,
there is really no reason why we shouldn't include the largest
originator of loans, and that is the mortgage brokers, in your
program and be somewhat flexible, yet provide safeguards on how
they apply your program and are involved in it, would you not
say there are options for us there?
Mr. Montgomery. We are again having those discussions with
them and will continue to have them and try to find a
reasonable compromise. Again, recognizing I have to be mindful
of the FHA insurance fund.
Mr. Miller of California. Okay, I agree with that. And I
think, Madam Chairwoman, that we worked very well last year in
constructing a bill that we all thought would do the best and
provide the most for our basic communities, and I really trust
that we can do that again this year, that we can come together
and look at good and bad and both and say, ``How do we come to
some reasonable compromise?'' ``How do we expand a program that
we absolutely understand and acknowledge is beneficial to the
market today, that in many cases has been impacted because of
lack of participation of FHA and GSEs.'' And I know for the
last 3 years, you and I have looked at this issue, how do we
expand it, and I think we are all going in a good direction, it
is just how we get there and do we get there in a way that we
think is acceptable, and can be applied in a broad base
fashion. So I look forward to working with you on this bill as
it proceeds.
Chairwoman Waters. Thank you very much, Mr. Miller. I will
recognize Mr. Green of Texas for 5 minutes.
Mr. Green. Thank you, Madam Chairwoman, and thank you very
much for hosting this hearing and presenting this piece of
legislation. My understanding of the history of the legislation
is that the essence of this legislation was captured in
previous legislation that was supported by this House and my
prayer is that we will receive the same support in this session
of Congress.
Mr. Montgomery, thank you very much for being here today. I
am so honored to share with my colleagues that you have been
very helpful in the current position that you are in, you have
been very responsive, and you have gone out of your way to be
helpful. You came to Houston, Texas, I believe, to help us with
one of our concerns and for this we greatly appreciate you.
Just a couple of really quick questions. The first is you give
an example in your testimony of a $225,000 loan and you explain
how this will--if FHA were the financier, the borrower would
save $137,000 over the life of the loan. Would you kindly go
through this as expeditiously as possible because I do have a
second question? I want people to hear from you how you believe
you can best serve people with reference to this example.
Mr. Montgomery. I will give you the very quick answer, we
price for the risk and the mortgage insurance. Subprime lenders
price for the risk and the interest rate. And, thus, you can
see the stark, very stark contrast between at a cap of 3
percent, $39 more a month versus upwards of $300 more a month,
and, yes, $137,000 over the life of the loan.
Mr. Green. And do you consider yourself in terms of
positioning, your position somewhere between prime and
subprime, is that a fair statement?
Mr. Montgomery. We are far closer to prime for this reason,
when a borrower gets an FHA loan through the mortgage
insurance, they are essentially buying a prime interest rate.
Mr. Green. And the final question has to do with today's
news, we find that we have many persons who are being
foreclosed on, how would your FHA alternative be a safer
alternative than a subprime alternative?
Mr. Montgomery. By far the fact that we are the most
transparent loan process out there with the full faith and
credit of the U.S. Government backing these loans. There are no
surprises with an FHA loan between the no prepayment penalties,
which are crippling families today, no teaser rates, no sticker
shock. And, as I referenced earlier, no one has ever said, ``I
didn't understand my FHA loan'', because it is a back to basics
approach.
Mr. Green. I thank you very much, and I thank you again for
coming to Houston. Madam Chairwoman, I yield back the balance
of my time.
Chairwoman Waters. Thank you very much. Ms. Capito?
Mrs. Capito. Thank you, Madam Chairwoman. Thank you, Mr.
Commissioner, for coming. I noticed in your testimony that one
of the proposed changes is to increase the loan limits, FHA
loan limits, and then you get into some fairly technical kinds
of comparisons as to why that is important. Could you just
briefly tell me, what are the loan limits and what are you
looking to increase them to?
Mr. Montgomery. Right now for the high-cost States, such as
California and most of the Northeast, we are at about 87
percent of the conformity rate, which is about $360,000 a year.
Mrs. Capito. That is your max-out rate?
Mr. Montgomery. That is just for those high-cost States.
Essentially for everyone else with a few exceptions, give or
take, the maximum is around $200,000 a year.
Mrs. Capito. Okay, I know one of the hurdles of home
buying, particularly first-time home buyers, is that down
payment, and we passed a piece of legislation, the American
Dream Down Payment Act, to try to help first-time home buyers
jumping over that hurdle. Does your product meld with that? Do
your brokers, are they able to couple those together? Do you
see that as helping with the potential growth of FHA loans? How
do you perceive that?
Mr. Montgomery. Well, the realities have estimated last
year about 45 percent of loans were made with no down payment.
Our proposal does away with the requirement for a 3 percent
cash investment but essentially runs the gamut in between from
a 97 percent LTV up to 99.95 LTV, if you will. Because of the
risk-based approach and families having some choice, how much
they want in an up-front premium or in an annual premium, they
can in many cases have that choice. It is just like families
have today, some families elect to pay a little higher interest
rate to keep more money in their pocket so they can pay for a
new refrigerator or upgrades to their home and the like.
Mrs. Capito. And how does the FHA from say, the West
Virginia Housing Development Fund, is there a good
communication between State availability of loans and the FHA?
And do you feel like you are working together to maximize the
resources?
Mr. Montgomery. We are working together. We can always work
together better but again in the high-cost States, the State
housing finance agency has difficulty offering an FHA product
because of our constraints on the premium structure and
certainly on the loan limits.
Mrs. Capito. Okay, thank you. Thank you, Madam Chairwoman.
Chairwoman Waters. Thank you very much. Mr. Clay for 5
minutes.
Mr. Clay. Thank you so much, Madam Chairwoman. And thank
you for holding this hearing today. Mr. Montgomery, my question
is not strictly about FHA. We have a national crisis with home
foreclosures and it will affect the national economy in an
adverse way and the effect on some local economies will be
devastating. Millions of families will lose equity and their
standard of living. I noticed today that even Freddie Mac has
decided to purchase $20 billion in these troubled loans. The
executive director of the Equal Housing Opportunity Council
report on CBS News that home mortgage foreclosures are up in
both the City of St. Louis and St. Louis County, which I
represent, when compared to 2005. In 2006, foreclosures were up
44 percent in the City and 34 percent in St. Louis County. What
is HUD's position on this crisis? And is HUD designing any
special initiatives to combat the rapidly rising foreclosures?
Mr. Montgomery. I think the best way to help many subprime
borrowers get out of their loans today is through a modernized
FHA, the same song I was singing here last year, and have for
the last 20 months. Now relative to the bill that got through
this committee last year and through the House, this year
though since October of last year we have been doing home
buying counseling, working with many nonprofit groups trying to
get the word out, working with Realtors to help many families.
But while we are helping, as I mentioned before, subprime
borrowers today, the best way to do it is to pass this bill to
help more.
Mr. Clay. What is HUD's opinion on the proper amount of
government intervention into the market? I think that Freddie
Mac has really stepped up to the plate to actually say we will
help salvage some of these people's American dream of
maintaining their home and holding onto that property. What is
the government's proper intervention in a crisis like this?
Mr. Montgomery. With all due respect to my colleagues at
Fannie Mae and Freddie Mac, they are private corporations. They
have the ability to make decisions overnight. I am not saying I
need that ability. But beyond the obvious remedy, modernizing
FHA, there are some things we can do in the here and now that
we are working on and are on track to help at least 60,000
subprime borrowers this year. Some of these fixes I discussed
here in the hearing in this room on Tuesday, and we are putting
those through a risk analysis, as the Credit Reform Act
requires, and we should know how those will come out in the
next month.
Mr. Clay. So some of those 60,000, you will be able to save
their homes, or get them into another form of financing?
Mr. Montgomery. We are on track to help 60,000 this year.
It is our conservative estimate, through FHA reform, that we
could help easily 200,000 more--200,000 or more in addition to
the 60,000.
Mr. Clay. Thank you. Thank you so much for those answers.
And, Madam Chairwoman, I yield back.
Chairwoman Waters. Thank you very much, Mr. Clay. Mr.
Ellison for 5 minutes.
Mr. Ellison. Thank you, Madam Chairwoman. Sir, thank you
for coming to visit with us today. I just have a few questions
and they are of a more general nature. Could you share with us
your assessment of what the unmet housing needs are for
Americans today?
Mr. Montgomery. Are you talking about relative to rental
housing or homeownership?
Mr. Ellison. I mean in general.
Mr. Montgomery. Let me take two groups in particular, the
elderly and persons with disabilities, an industry group, AUSA,
estimates that there are probably 10 seniors waiting for every
Section 202 property. That is the elderly housing program HUD
has. We have 10 on a waiting list for every one that gets into
the property. Some of the disability groups have also talked to
us about the urgent need for housing and as part of our early
budget we have some demonstration projects that we think will
help mitigate that need.
Mr. Ellison. Thank you. That is similar to the information
I received, particularly with seniors, but also just general
low-income housing. In Minneapolis, there is a significant
waiting list there. Could you speak to what in your view
happens to a community when there is such a shortage of housing
for certain sectors like seniors, low-income people, or people
with disabilities. What do they do? Are they the homeless?
Mr. Montgomery. I cannot speak for the homeless group, that
is a little out of my lane, but for many decades, certainly
pre-dating my arrival at FHA, there has been a shortage of
housing for low-income families throughout America. And we are
trying to do what we can in this tight budget environment to
help even more through the use of Low-Income Tax Credits,
through home funds and others. But certainly I have said
publicly, yes, there is a production problem relative to
helping some of those groups, and we are trying to fix that.
Mr. Ellison. I have had a lot of conversations about
housing recently and one individual indicated to me that the
reason that we are in this housing--in the subprime lending
foreclosure situation we are in today is because there has
been, over the last 30 years, a liberalization in the rules
with regard to making mortgages available to people because we
place value on getting people into homeownership. Do you have
any views on that?
Mr. Montgomery. Well, I can speak for FHA. Some of what you
read and hear, some of the no-income and no-asset stated income
products, while inherently that is not a bad product for many
families, in the many ways it was used we have some of the
problems we are looking at today and that is something FHA does
not do. We have rather rigorous and strict requirements
relative to things such as income verification, and social
security numbers, so that is certainly one of the concerns that
we will not do under FHA, at least certainly while I am there.
Mr. Ellison. I would like to ask you now about housing with
regard to people who are ex-offenders coming out, have you had
occasion to examine housing for these individuals who have
prior contacts with the criminal justice system, perhaps even
felony records, is that something you have had any occasion to
think about or work on?
Mr. Montgomery. I have not, Congressman, but I would
certainly be interested in discussing that with you at a later
date.
Mr. Ellison. In the course of your work, and in your
reading, have you recognized or found out whether or not this
particular population is having some unique difficulties with
regard to obtaining housing?
Mr. Montgomery. Well, there are certainly many groups who
have unique difficulties obtaining housing and relative to this
group, I would certainly love to hear your views on that at a
later time.
Mr. Ellison. Okay, thank you very much.
Chairwoman Waters. Thank you very much, Mr. Montgomery. We
appreciate the time that you have put in here this morning. I
hope that you will pay attention to our housing trust fund and
understand that it is very key to getting a bill out of here
and some of those other issues, I think, working with Mrs.
Biggert, we can resolve. Thank you very much.
Mr. Montgomery. Thank you.
Chairwoman Waters. I will now call the second panel. Our
second panel consists of: Ms. Iona Harrison, GRI, National
Association of Realtors; Mr. Lautaro ``Lot'' Diaz, vice
president, community development, National Council of La Raza;
Mr. John M. Robbins, CMB, chairman, Mortgage Bankers
Association; Mr. Ed Smith, Jr., chairman, CAMB Government
Affairs Committee, chief executive officer, Plaza Financial
Group, California Association of Mortgage Brokers; and Mr.
William P. Killmer, group executive vice president for
advocacy, National Association of Home Builders.
While our panel is getting seated, I ask unanimous consent
to have the written statements of the AARP and Consumer
Mortgage Coalition, as well as letters of support from the
National Council of State Housing Agencies and HUD counseling
intermediaries entered into the record. Without objection, such
will be the order.
Thank you very much. We will start our panel with Ms. Iona
Harrison.
STATEMENT OF IONA C. HARRISON, GRI, NATIONAL ASSOCIATION OF
REALTORS
Ms. Harrison. Good morning.
Chairwoman Waters. Welcome.
Ms. Harrison. Chairwoman Waters, and Ranking Member
Biggert, thank you for the opportunity to speak before you
today. My name is Iona Harrison and I am a broker-owner with
Realty Executives/Main Street USA in Upper Marlboro, Maryland.
I am here to testify on behalf of 1.3 million members of the
National Association of Realtors. We thank you for the
opportunity to present our views on the importance of the FHA
Mortgage Insurance Program and the urgent need for reform. In
fact, when Realtors come to Capitol Hill next month, FHA reform
will be one of their primary talking points.
Consumers need a safe, affordable mortgage alternative. In
2006, 1.2 million families entered into foreclosure, 42 percent
more than in 2005.
Chairwoman Waters. Excuse me, Ms. Harrison, will you pull
your mike a little bit closer so that we can hear you. It will
not move.
Ms. Harrison. Thanks.
Chairwoman Waters. Oh, all right.
Ms. Harrison. I think he was leaning on it.
Chairwoman Waters. Okay.
Ms. Harrison. In 2006--is that better--1.2 million families
entered into foreclosure, 42 percent more than in 2005.
Predatory lending, exotic mortgages, and a dramatic rise in
subprime lending,coupled with slowing home price appreciation
have all contributed to this crisis. When the Federal Housing
Administration was established back in 1934, consumers faced a
similar lending crisis. At that time, FHA was an innovator and
led the private market in offering safe, affordable home loans
to American families. Since its inception, FHA has insured more
than 34 million properties. However, the FHA has failed to keep
pace with borrower needs and changes in the private market and
is no longer a viable alternative for many borrowers. At the
same time, the subprime and non-traditional mortgage markets
have boomed. Many of these loans offer low teaser rates which
reset to much higher rates after a few years. In many cases,
these borrowers qualified only on their ability to make the
initial payment and face large prepayment penalties if they
attempt to refinance. Mortgage experts estimate that
approximately $1.5 trillion worth of adjustable mortgages will
reset by the end of 2007. Faced with significantly higher
monthly payments, many borrowers will face the possibility of
losing their homes.
Realtors support efforts to give consumers affordable
alternatives to the more risky loans that are currently being
heavily marketed. We believe the FHA could again be a viable,
affordable alternative for borrowers with less than ideal
credit.
Today, we ask you to advance legislation that would reform
the FHA Mortgage Insurance Program in several important ways.
Increases in FHA loan limits are needed not just in high-cost
areas, but nationwide. Such increases are critical for FHA to
assist home buyers in places like California but also areas
where home prices exceed the current maximum limit but are not
defined as high cost, such as Illinois, Ohio, and Arizona.
Second, we ask you to eliminate the statutory 3 percent
minimum down payment on FHA-insured mortgages. In 2005, 43
percent of first-time home buyers financed 100 percent of their
home. NAR research indicates that if FHA were allowed to offer
this option, 1.6 million families could benefit, including many
low-income and minority home buyers. Eliminating the statutory
3 percent minimum cash investment will provide consumers a safe
option away from non-traditional products.
Third, NAR supports legislation that would provide FHA with
the ability to charge borrowers different premiums based on
risks of the borrowers and type of loan product. Currently, all
FHA borrowers, regardless of risk, pay virtually the same
premiums and receive the same interest rate. Giving FHA the
flexibility to charge different borrowers different premiums
based on risk will allow FHA to increase their pool of
borrowers. Risk-based pricing makes sense in the private market
and does for FHA as well.
Fourth, NAR supports moving the Condo Program into the
203(b) Program and combining all single family programs into
the Mutual Mortgage Insurance Fund. From a conceptual and
accounting standpoint, it makes sound business sense to place
all single family programs under the MMIF. We also recommend
that HUD lift many of the barriers that make condominium
purchase difficult under FHA. We believe the current policies
limit sales and homeownership opportunities, particularly in
market areas where condos are one of the few remaining
affordable housing alternatives.
In addition to the reform measures I just outlined, the
National Association of Realtors has provided HUD Secretary
Jackson with a proposal that would allow FHA to help many
families with recent or impending interest rate adjustments
refinance into a loan they can afford. Our proposal is to allow
credit-worthy borrowers, who may not be current on their
existing loan, to refinance into an FHA loan. Many of these
homeowners who might otherwise qualify for FHA-insured mortgage
are preempted by guidelines that prohibit refinancing the loans
that are not current. We believe FHA can design a set of
prudent guidelines where credit-worthy borrowers could
refinance and avoid losing their homes. NRA has also encouraged
HUD to conduct a large public-awareness campaign to fully
inform homeowners of their options once FHA reforms are in
place. Realtors would support these efforts as a natural
extension of our FHA education brochure which we produced with
HUD last year.
FHA is the only national mortgage insurance program that
provides financing to all markets at all times. Now more than
ever, FHA needs to be strengthened so that it will continue to
be available to borrowers when they need it most. Realtors
stand ready to work with Congress and HUD to breathe new life
into the FHA and ensure all Americans can afford to buy and
keep their homes for as long as they choose.
Thank you again for the opportunity to testify on this
important issue. I stand ready to answer any questions that you
may have.
[The prepared statement of Ms. Harrison can be found on
page 48 of the appendix.]
Chairwoman Waters. Thank you very much. Mr. Lautaro ``Lot''
Diaz?
STATEMENT OF LAUTARO ``LOT'' DIAZ, VICE PRESIDENT, COMMUNITY
DEVELOPMENT, NATIONAL COUNCIL OF LA RAZA
Mr. Diaz. Good morning.
Chairwoman Waters. Good morning.
Mr. Diaz. My name is Lot Diaz, and I am vice president of
Community Development at National Council of La Raza (NCLR).
For the past 20 years, I have been working to promote safe and
affordable communities for working families. At NCLR, I oversee
the NCLR Homeownership Network, a group of 43 counseling
agencies working nationwide.
I would like to start by thanking Chairwoman Waters and
Ranking Member Biggert for inviting NCLR to participate in the
dialogue. I would like to congratulate the members of this
committee, and Ms. Waters in particular, for the hard work on
FHA reform.
The Expanding American Homeownership Act of 2007 improves
on the previous versions of the bill. In the past 8 years, I
have seen FHA go from a product of choice in our communities to
one used by far fewer families. Since FHA has an important role
to play, now is the time for a modernized FHA program.
In my time here today, I would like to discuss three main
points: Why a stronger FHA is good for Latinos; the importance
of greater access to homeownership counseling; and other ways
FHA can promote Latino wealth building.
Let me start with why we need a stronger FHA. FHA has been
a traditional way for Latino families to achieve homeownership,
however aggressive subprime marketing in our communities have
pushed FHA to the sidelines. The number of Latinos using FHA
have been decreasing every year. At the same time, many of our
families do not have good loan options to choose from. As a
result, they are vulnerable to predatory lenders. A competitive
FHA would be a safe alternative for Latinos with fewer loan
options.
In addition to affordable loans, Latino families benefit
from homeownership counseling. NCLR created a network of
housing counselors 10 years ago. Now we are serving more than
33 Latino communities across the country. Last year, we helped
nearly 3,000 families purchase their first home. Participants
cite counseling as one of the most important factors in their
ability to successfully purchase. Research also shows that
these families are far less likely to default. H.R. 1852
increases the availability of counseling for FHA borrowers.
This is especially important for borrowers who would access the
newer products such as zero down payment and interest-only
loans.
Last year, we also helped over 1,000 families who were
already homeowners. Some were falling behind on their loan
payments; others needed help to be refinanced in a more
affordable mortgage. For many families in danger of default,
time is the enemy. The earlier we can talk with the borrowers
regarding their late payments, the better. Counselors are
working hard to get the word out for their services but this is
not enough. Counselors need more resources and they need to get
to the borrower before it is too late. Congresswoman Waters and
Congresswoman Velazquez worked on this issue. The opt-in
provision of H.R. 1852 will allow families access to
foreclosure prevention assistance. FHA borrowers will be able
to sign a form saying they want a counseling agency to contact
them in the case of default. We believe this is a powerful tool
that will connect families with intervention services when they
need it.
One successful example of foreclosure assistance is Ms.
Vega. She came to visit the Spanish Coalition for Housing in
Chicago a couple of months ago. Her mortgage payments jumped
unexpectedly and she could not make them. The initial repayment
plan offered by her servicer was too expensive. Our counselors
were able to negotiate on her behalf and because of their work,
the terms of Ms. Vega's loan have been modified. If it weren't
for the Coalition's work, she would have lost their family's
home.
There are other noteworthy additions to this FHA
modernization bill as well. The bill includes rewards for
families to pay on time. Clearly, on-time payers have proven
that they are a lower risk. Legislation would reduce the
insurance premium over time. We also support raising the FHA
loan limits in high-cost areas. Clients in our groups in
California; Seattle, Washington; Boston, Massachusetts; and
Alexandria, Virginia, for instance, face high housing prices.
FHA would be available to more families if the loan limits were
higher. Finally, the cap placed on fees will keep FHA
affordable to all of our borrowers, which is really important.
Let me close by offering a couple of suggestions to further
strengthen the bill: increase funds for housing counseling to
$100,000 million and make sure counseling agencies can earn
fees for the services they provide to industry; reinstate the
FHA discount for families that got counseling through HUD-
certified programs; and finally FHA should set the bar for
industry ethical standards. We need a code of ethics to hold
originators accountable given the potential changes to the FHA
program.
Thank you. I would be happy to answer any questions at your
convenience.
[The prepared statement of Mr. Diaz can be found on page 43
of the appendix.]
Chairwoman Waters. Thank you very much.
Mr. Robbins?
STATEMENT OF JOHN M. ROBBINS, CMB, CHAIRMAN, MORTGAGE BANKERS
ASSOCIATION
Mr. Robbins. Good morning, Chairwoman Waters, and Ranking
Member Biggert. Thank you for holding this hearing and inviting
me to share MBA's views on reforming the FHA. I have spent over
36 years working with FHA and have made billions of dollars in
loan originations to families who have achieved the dream of
homeownership through FHA's programs. When I started in the
mortgage business, FHA programs helped us to serve many
borrowers who otherwise could not get a loan. Today, the story
is very different. In 2003, FHA made up approximately 16
percent of our overall production. Last year, however, only a
little more than 1 percent of our business went to FHA. While
the mortgage market has grown significantly, our use of the FHA
program has dropped precipitously. Lenders have progressed,
reacting to quickly changing and efficient technology.
Unfortunately, FHA has not. While the needs of low- and
moderate-income home buyers, of first-time home buyers, and of
senior homeowners have changed, FHA has not followed its
historic path of adopting to meet borrowers' changing needs.
MBA strongly supports FHA and believes that it still plays
a critical role in today's marketplace. Most of FHA's business
is directed toward low- and moderate-income and minority
borrowers, the very strata that is most challenged to be part
of the American Dream. At the same time, we have watched with
growing concern as FHA has steadily lost market share over the
past decade, potentially threatening its long-term ability to
help underserved borrowers. As the market continues to evolve
around FHA, the great fear is that many aspiring homeowners
will either be left behind or forced into higher cost
alternatives.
MBA notes with great concern that the Administration's
fiscal year 2008 budget proposal estimates that the FHA
Mortgage Insurance Fund will go into the red next year unless
changes to the existing program are made or additional
appropriations are provided. MBA agrees with the Administration
that the FHA's Mutual Mortgage Insurance Fund would run in the
black with little or no premium increases necessary if FHA
reform proposals were passed this year.
MBA applauds the introduction of FHA reform bills, H.R.
1852 and H.R. 1752, and that they started the reform effort
early in the 110th Congress. MBA strongly supports changes to
FHA's single family and multi-family loan limits and down
payment flexibility and requirements including the elimination
of the complicated down payment formula. The down payment is
one of the primary obstacles for first-time minority and low-
income borrowers. We believe Congress should empower FHA to
allow it to meet today's needs and anticipate tomorrow's. The
MBA believes changes should also be made in three areas: FHA
needs more flexibility to introduce innovative new products;
invest in new technology; and manage their human resources.
Finally, MBA also supports changes to the Home Equity
Conversion Mortgage Program. MBA's surveys show that FHA's
HOEPA product comprises 95 percent of all reverse mortgage and
is thus tremendously important for senior homeowners.
In conclusion, FHA has an important role to play in the
market in expanding affordable homeownership opportunity for
the underserved and addressing the homeownership gap. For low-
and moderate-income families, FHA should be the financing
considered first because it has the lowest rate and provides
the borrower the best opportunity to become a successful
homeowner. However, the current loss of market presence means
we are losing FHA's impact. The result is that some families
are either turning to more expensive financing or just giving
up. I urge Congress to enact legislation to reform FHA to
increase its availability to home buyers, promote consumer
choice, and ensure its ability to continue serving American
families. MBA stands ready to work with you on this important
issue. Thank you.
[The prepared statement of Mr. Robbins can be found on page
71 of the appendix.]
Chairwoman Waters. Thank you very much.
Mr. Smith?
STATEMENT OF ED SMITH, JR., CHAIRMAN, CAMB GOVERNMENT AFFAIRS
COMMITTEE, CHIEF EXECUTIVE OFFICER, PLAZA FINANCIAL GROUP,
CALIFORNIA ASSOCIATION OF MORTGAGE BROKERS
Mr. Smith. Good morning. Thank you very much for having me
here, Congresswoman Waters, and Mrs. Biggert. On behalf of the
California Association of Mortgage Brokers, of which I am the
vice president of government affairs and industry relations, I
want to bring a different perspective to the table, I am
actually a practicing mortgage broker who deals with customers
on a daily basis. For the past 24 years in my marketplace, I
have seen many, many families come to my office, sit down with
me, and we have structured an opportunity for them to have the
American Dream. Part of that conversation normally when we get
started is the expectations of homeownership, their dreams of
homeownership. We talk about the future of building
generational wealth. Those conversations occur in every time
and in every opportunity that I have to serve someone with
doing a mortgage for them.
Over the past few years, I have seen the FHA loan product
in our marketplace in California completely disappear. The
colleagues who are here obviously have articulated that fact
over and over again. My perspective that I want to bring to you
is the ground level eyeball conversations that we have. When
someone walks into our office and looks into buying a home--a
median priced home in southern California is over $500,000--
this has a devastating effect on them. We are now, because of
the loan limits in California being low, California not being
designated as a high-cost State, we have very limited
opportunities and products available to deliver a sustainable
loan. Over the past few years, we have gone to the subprime
market. The subprime market has now been the conventional
solution to the lack of sustainable loan products through FHA.
I used to do FHA loans all the time. We do not do those anymore
because it is not applicable in our marketplace, the loan
limits are too low. So, consequently, we have gone to 100
percent financing with subprime loans. We have gone to
interest-only products which keep people in a low payment
opportunity to be able to maintain those homes, but we try to
develop a sustainable plan for them to keep their homes, to
refinance into their homes. Many of those plans and dreams have
not occurred. After 2 years or 3 years, those interest-only
products have reset, payment shock has set in, and their
financial dynamics have completely changed, which puts them in
a position of financial peril.
We all know where we are with foreclosures. We are dealing
with foreclosure rates that are escalating throughout the
country, especially in your district and in my marketplace in
San Diego. What alternatives do we have now other than to go
out to the marketplace and try to find another sustainable
product for them that is not available? The liquidity, the
availability of loans and products has diminished dramatically.
Those customers sit there and look me in the eye and ask me,
``Smitty, what am I going to do? How can I keep my home for my
family?'' I have to research, dig and try to find products to
keep people in their homes that are not there anymore. FHA is a
very viable solution to the subprime crisis that we are in
right now. It delivers a sustainable product that has no
prepayment penalties, fixed rate loans, and impounds for taxes
and insurance. These are the type of financial instruments
that, if we have available to us, we will be able to put people
in their homes, keep them in their homes, and preserve the
homeownership opportunities that they have started with.
One of the things that is a big drawback throughout
America, and specifically in California, is that the mortgage
broker, the small business, does not have the availability of
the FHA product. We are the number one delivery channel for
home loans in America. We produce approximately 70 percent of
every home loan in America. If we do not have the opportunity
to deliver that sustainable product to low- and moderate-income
individuals, we are cutting 70 percent of the opportunities out
for people who want to keep their homes.
What I would encourage us to do is to have a solution that
keeps us, the mortgage broker, the person who is in the
community, who lives in the communities, who works in the
communities, we go to church with our customers, we build our
businesses on referrals. It is incumbent upon us to work hard
for each and every customer we have because we live and work
with them. We operate on repeat business. If giving us the
opportunity--if giving mortgage brokers the opportunity to
deliver the FHA product, I believe that would be the first step
in the solution to the foreclosure ratios that we are having
now and to build a long-term base for sustainable--for
maintaining sustainable homes and build net worth for customers
in the future.
[The prepared statement of Mr. Smith can be found on page
88 of the appendix.]
Chairwoman Waters. Thank you very much.
Mr. Killmer?
STATEMENT OF WILLIAM P. KILLMER, GROUP EXECUTIVE VICE PRESIDENT
FOR ADVOCACY, NATIONAL ASSOCIATION OF HOME BUILDERS
Mr. Killmer. Thank you, Chairwoman Waters, Ranking Member
Biggert, and members of the subcommittee. My name is Bill
Killmer and I am the National Association of Home Builders
Group vice president for advocacy. We thank you for the
opportunity to testify on behalf of NAHB on the subject of FHA
revitalization. First, I want to thank the members of this
subcommittee for your strong bipartisan support of FHA reform
during the 109th Congress and for taking action so quickly here
in the 110th.
The ongoing turmoil in the subprime mortgage markets
greatly increases the urgency for enactment of FHA legislation.
While subprime mortgage programs have played a valuable role in
expanding homeownership opportunities, some lenders have
resorted to less rigorous lending practices that have harmed
borrowers in the housing finance system. The unfortunate
experience of such borrowers provides the compelling reason why
FHA needs the tools to meet its mission objectives more
effectively. Indeed, I believe that much of the trouble in the
subprime mortgage market and the hardships it has produced for
many borrowers could have been avoided if the FHA had been in a
better position to respond to changing market forces in the
past few years. The popularity and relevance of FHA single
family mortgage insurance programs waned over the past 2
decades as its programs failed to keep pace with mortgage
market developments and needs. That vacuum was exploited during
the past 5 to 7 years as competing subprime mortgage loan
programs lured many borrowers into untenable situations.
FHA's lack of responsiveness to market needs has placed
many borrowers in highly risky and inappropriate loan
structures where they were charged unreasonably high fees and
interest rates and often faced onerous pre-payment terms. Many
of these borrowers, despite limited cash resources and/or
tarnished credit, could have qualified for market rate FHA-
insured loans. In numerous instances, this is due to statutory
constraints that have limited FHA's ability to respond to the
needs of borrowers who might have otherwise chosen FHA.
So NAHB looks forward to working with the committee in the
coming weeks to advance comprehensive FHA reform legislation
that includes, among many other worthy changes, the following
key reforms.
First, the current limit for FHA-insured mortgages is too
low to enable deserving potential home buyers to buy homes in
many high-cost areas. The artificially low limit restricts
choices for home buyers who use FHA-insured mortgage loans.
They are pushed to the lowest echelon of available homes
throughout the country and in many areas FHA loan limits
preclude borrowers from purchasing new or recently constructed
homes. So NAHB supports recalibrating local loan limits to 100
percent of the area median and increasing the national floor
for FHA loan limits.
Second, NAHB believes that FHA can effectively serve a
broad range of borrowers while acknowledging that the risk of
default varies widely. In fact, some delineation in credit risk
is necessary if FHA is going to prudently provide an
alternative to subprime borrowers who cannot get reasonable
loan terms on conventional loans. To be competitive, FHA must
also have greater flexibility in establishing down payment
requirements and both comprehensive reform bills currently
before the subcommittee contain provisions that would alter the
present structure for determining the amount of cash a borrower
would have to invest to qualify for an FHA-insured loan in
addition to the parameters to which the mortgage inserts
premium would be determined. NAHB has long supported efforts to
provide the FHA flexibility in these areas, and we look forward
to working with this committee to advance such needed reforms.
Third, in many communities condominiums represent the most
affordable path to homeownership. Unfortunately, FHA's
requirements for condo loans are burdensome, differing
significantly from requirements for mortgage loans that are
secured for single family detached homes. The net result is a
severe limitation on the availability of FHA-insured mortgages
for those attempting to purchase a condo unit. So NAHB supports
efforts to consolidate all of the single family mortgage
insurance programs under one section of the National Housing
Act. This would be a major step in reopening FHA-insured
financing to this critical affordable market segment.
Fourth, FHA's Home Equity Conversion Mortgages, or HECMs,
allow homeowners who are at least 62 years old to access equity
in their homes without having to make mortgage payments until
they move out of their home. HECMs have found increasing
acceptance among seniors as a financial alternative. However,
the current program cap and the unrealistically low loan limit
keep FHA from serving this growing segment of the population.
Reform legislation should also ensure that seniors are able to
employ HECMs to purchase homes that are more suitable to their
current lifestyle and activities, including newly built homes
that typically offer lower maintenance and operating costs.
And, finally, NAHB supports efforts to increase limits on
FHA-insured multi-family loans in high-cost areas. Currently,
there are some areas in the country where construction costs
are so high that use of the FHA programs is just not possible.
With severe shortages of affordable rental housing in most of
the high-cost markets, this change would enable developers to
provide much needed new affordable housing to low- and
moderate-income families.
Thank you once again for this opportunity, and I would
welcome any questions you may have.
[The prepared statement of Mr. Killmer can be found on page
56 of the appendix.]
Chairwoman Waters. Thank you very much. We are going to
move right into our questions now, and I will recognize myself
for 5 minutes. For the first set of questions, I want to go
directly to you, Ms. Harrison. You said you submitted a set of
recommendations to HUD. Do we have a copy of those
recommendations by any chance? If not, would you please submit
them.
Ms. Harrison. It has been sent to staff and we can make
sure that you and the other members of the committee receive
those directly.
Chairwoman Waters. I would appreciate it because it sounds
as if you have some very, very good recommendations. I have
heard twice now about the condo problem.
Ms. Harrison. Yes.
Chairwoman Waters. Mr. Killmer has referenced it and you
referenced it first, so would you explain to me what is the
problem with the financing of condos by FHA?
Ms. Harrison. Certainly, ma'am, thank you. There are
several provisions, at this moment condos are financed, there
are four different funds that FHA uses. Single family is the
MMIF fund. What we propose is that condos be moved to the
single family, the MMIF, because it is an appropriate place for
it to be and it does not have the problems with--occasionally
funds stop for these programs under the other fund. The
continuity of funds is important for us as Realtors and for
home buyers because if you have written a contract to purchase
a home, one assumes that the funds will be there when you are
ready to close. And if the availability stops due to some other
constraint in a multi-family area or some other problem, it is
extremely frustrating, and we are talking about probably a
major life event for that first time home buyer who is
purchasing the condo. There are other--the smaller strictures,
for instance, if you are buying a condominium in a development,
you have to prove that 51 percent of those are homeowner
occupied. I myself can remember--and this has not changed
throughout time, so you can see that the paperwork involved in
even trying to ``prove'' who lives in a house at some time can
be very difficult and that prevents a borrower from perhaps
purchasing a home, and this was in the Fort Washington area of
Maryland, that would have been a very feasible option in every
other way but the funding was not available.
Chairwoman Waters. I get it. We are going to take a look at
that.
Ms. Harrison. You are a quick study.
Chairwoman Waters. The other thing that I am going to ask
you and others maybe to refer to in the few minutes that I have
left is, is this refinancing of existing mortgages by FHA a
problem, or is it not allowed?
Ms. Harrison. Currently, my understanding is that if the
homeowner is considered to be in default, that does not even
have to be in foreclosure, they are behind on their payments,
they are not allowed to refinance, and we think that if they
are credit worthy in every other respect that the opportunity
to refinance into an FHA product would prevent a defaulting
borrower from becoming a foreclosure borrower.
Chairwoman Waters. Okay, so you would suggest to me that we
could help to straighten out the situation for those who are
about to be in trouble, or may have gotten into trouble
already, so that they could refinance and FHA would be able to
save them from losing their homes right now with this crisis
that we have going on, is that correct?
Ms. Harrison. That is our proposal and, yes, we believe
that is indeed possible, but of course it would call for
expeditious passage of legislation to allow that.
Chairwoman Waters. Okay.
Mr. Robbins. Very briefly, let me add?
Chairwoman Waters. Yes?
Mr. Robbins. Madam Chairwoman, one of the problems is that
it is very difficult to get to borrowers when they go into
delinquency. Like human nature dictates, sometimes when you owe
people money, they are the last ones you want to talk to. And
so they do not respond to queries and many times we have to use
consumer groups and whatever means we have to get to them.
Under current FHA regulation, at the time they go into
delinquency, FHA could not come in and be one of the solutions
or represent one of the solutions. So Commissioner Montgomery's
ability to change that language, I think, would be imperative
to helping many, many homeowners who are trapped in those
mortgages today.
Chairwoman Waters. All right, we will certainly make note
of that. I am going to go to our ranking member, Mrs. Biggert,
now for questions for 5 minutes.
Mrs. Biggert. Thank you, Madam Chairwoman. Mr. Killmer, how
do we ensure that there are adequate underwriting standards for
FHA products so that the expansion into a pool of risky
borrowers will not pose a threat to the Mutual Mortgage
Insurance Fund?
Mr. Killmer. I think that is a careful balance that the
subcommittee has to strive for--clearly diving deeper into that
pool is going to help the broad strata of folks that FHA could
reach. NAHB believes that the provisions that are in both of
the bills go in the right direction in terms of risk-based
credit pricing and the changes in the down payment requirements
and certainly the mortgage insurance premium provisions. And we
would urge that those provisions be as simple and
straightforward given the nature of the complexity for the
borrower to understand so that they will be utilized to a more
full extent.
Mrs. Biggert. Thank you. Would anyone else like to respond
to that?
Mr. Robbins. Yes, just a very brief comment for you.
Mrs. Biggert. Mr. Robbins?
Mr. Robbins. Part of the foreclosure issue that we are
going to be facing and looking at currently was caused by low
FICO scores, no income, and no asset underwriting. FHA, I would
like to remind all of the Congress, that FHA uses specific
underwriting, more traditional underwriting, in the approval of
their loans. And so it is relatively rigorous and should not be
confused with what caused some of the problems that we are
currently facing.
Mrs. Biggert. Thank you. Ms. Harrison, in one of my former
lives, I did real estate as an attorney. In Illinois, there was
a court case which after that required attorneys to be present
at closings. And one of our jobs obviously was to go over the
loan agreement and explain that to the purchaser. How close are
the Realtors to examining the loan documents since Realtors are
the ones that really are on the forefront of encouraging a
buyer to be able to come up with the monies for a home, and I
was just wondering if Realtors ever really see, well, this
person really is never going to make it but we are going to go
ahead with the sale?
Ms. Harrison. That is an excellent question and we as
Realtors, indeed Realtors and not attorneys, and certainly we
would never set ourselves out to be attorneys, traditionally
accompany our buyer clients and our seller to the settlement
table and sit there and will assist them with our own advice
but the need for counsel and to review documents is still
something that we would encourage our buyers to do, to have
their own counsel. In the State of Maryland, you often make
settlements in an attorney's office, but very often it may
simply just be a settlement officer not actually an attorney
who explains the documents. And, quite frankly, if you have
seen--if any of you have seen loan documents recently, they are
extraordinary in their complexity. I remember the former
secretary, Mel Martinez, said that he as an attorney was
absolutely floored by the volume of documents that they look
at. We give people the opportunity to examine their Truth in
Lending statement at the time that they are making loan closing
and again will offer what expertise we have. But once again we
are facilitators of the transaction and certainly would never
set ourselves up to give them that type of advice.
Mrs. Biggert. Thank you. I will yield back so we can
continue.
Chairwoman Waters. Thank you very much. Mr. Cleaver?
Mr. Cleaver. Thank you, Madam Chairwoman. Since we have a
vote coming, I will be brief. In H.R. 1852, which was
introduced by Chairwoman Waters and Financial Services Chairman
Barney Frank, it includes a requirement for pre-purchase
counseling for zero or lower down payment borrowers, the higher
risk borrowers. I am interested in getting a response from each
of you. Do you feel that is cumbersome, that it burdens those
who are in the business of trying to get these mortgages done?
Mr. Smith. I would like to take that answer.
Mr. Cleaver. Thank you.
Mr. Smith. On behalf of our organization, financial
literacy skills and financial literacy subsets are the
cornerstone of our process. We strongly advocate financial
literacy skills for individuals at an earlier age, even before
they start buying a home, but especially when it comes to
buying the largest investment of their life. Currently, under
some government subsidized programs, down payment assistance
programs, in order to qualify for those programs, you have to
participate in pre-purchase counseling. From our Association's
standpoint, we strongly agree with that and it helps not only
in that particular transaction but those skill sets can be
extrapolated into future financial decisions. We strongly agree
with that and it is not a cumbersome process.
Mr. Cleaver. Thank you. Ms. Harrison?
Ms. Harrison. Yes, we, the National Association of
Realtors, support borrowers having the option of getting
information about the availability of counseling services and
recognize the importance for many families to get that extra
instruction to make financial decisions about this very
important purchase.
Mr. Robbins. I would also add that we support counseling
strongly, but not mandatory counseling, because it increases
costs to the borrower and slows down the process.
Mr. Cleaver. I am sorry, the last part?
Mr. Robbins. Because it increases the cost to the borrower
and slows the process down. So we support counseling absolutely
but not mandatorily required. My understanding is that it is
not mandatory in the bill, it gives the commissioners
guidelines to determine the extent of counseling that should be
available. But it is our experience that counseling has been
really effective to avoid poor decision-making because of lack
of information. And so we have been working very hard to expand
those services broadly and any time it could be inserted into
the process, we found it helpful to low- and moderate-income
buyers.
Mr. Diaz. Yes, I would say that we join with the others and
are in strong favor of the provisions that are in the bill,
would not find them cumbersome, but only say that if this moves
forward as part of the reform legislation, that the Congress
work to appropriate enough HUD funds so that the counseling
services would be available.
Mr. Cleaver. I think in the HUD budget, there is like $50
million?
Mrs. Biggert. Would the gentleman yield just for a quick
insert here?
Mr. Cleaver. Yes.
Mrs. Biggert. We have a problem in Illinois where in one
county, it started out just in a small section but there is a
requirement for counseling and it is for everyone no matter
what size mortgage it is, and there just are not the people
there to do the counseling, people cannot close, and they are
losing houses because their mortgage does not go through. So we
need to look closely at that.
Chairwoman Waters. Let me just, if I may, Mr. Cleaver, ask
you to yield, so that Mr. Ellison may ask a question, and then
we are going to adjourn the committee. We have votes, and have
about 8 minutes left on the Floor. May I?
Mr. Cleaver. I yield to the ranking member of the
committee.
Mr. Ellison. Madam Chairwoman?
Chairwoman Waters. Yes.
Mr. Ellison. The questions I have maybe I can catch one of
our panelists in the hallway. Okay, well, let me just ask you
this question, and particularly Mr. Smith, your experience as
mortgage originator, after you do the deal, the mortgage
originator takes their fees out and then moves it on and a loan
officer will--after the loan goes to the secondary market, what
happens to loans that end up in foreclosure once they enter the
secondary market and are securitized, could you speak to that
reality and how that impacts on the generalized effect of the
foreclosure phenomena we see happening nowadays.
Mr. Smith. That is a good question. Once a transaction is
closed with a mortgage broker and it is actually moved on to
the secondary market, that loan is then taken over by a loan
servicer. That loan servicer is the one who is in communication
with the customer on a monthly basis collecting payments and
paying taxes if it is impounded. Once that transaction goes
beyond--gets into default, that customer is notified and called
and continuously attempted to be contacted to work out some
type of plan or to determine what in fact the problem is to get
that person back on track. Yes, sir?
Mr. Ellison. If I could just follow up real quick. So one
of the things that I have been concerned about is who is left
to do a workout with the customer once the mortgage has been
sold to the secondary market, the bank no longer has it, who in
your view is in a position to re-work the terms of that
mortgage so that it doesn't end up in foreclosure?
Mr. Smith. The loan servicer would be the first avenue of
redress for the consumer who has experienced a payment default.
And there are programs, I need to be real clear with you, the
loan servicer on the secondary market is extremely, extremely
motivated in working with the customer to keep that loan on the
books and get it back into a paid-as-agreed status.
Mr. Ellison. Thanks.
Chairwoman Waters. I would like to thank all of the members
of the committee for being here today to help us learn more
about this FHA reform that we have embarked upon, and I would
like to also thank the panelists for taking time from their
busy schedules to travel to be here with us today. Your
information is invaluable. We will get an FHA reform bill
through this Congress. We certainly have a few differences to
work out, but I am convinced that just as we were able to move
the bill before, we will be able to move it again, and it will
be a bill that I think most people can embrace. So thank you so
very much for being here today, and I look forward to working
with you.
Mr. Smith. Thank you very much.
[Whereupon, at 12:00 p.m., the hearing was adjourned.]
A P P E N D I X
April 19, 2007
[GRAPHIC] [TIFF OMITTED] 36818.001
[GRAPHIC] [TIFF OMITTED] 36818.002
[GRAPHIC] [TIFF OMITTED] 36818.003
[GRAPHIC] [TIFF OMITTED] 36818.004
[GRAPHIC] [TIFF OMITTED] 36818.005
[GRAPHIC] [TIFF OMITTED] 36818.006
[GRAPHIC] [TIFF OMITTED] 36818.007
[GRAPHIC] [TIFF OMITTED] 36818.008
[GRAPHIC] [TIFF OMITTED] 36818.009
[GRAPHIC] [TIFF OMITTED] 36818.010
[GRAPHIC] [TIFF OMITTED] 36818.011
[GRAPHIC] [TIFF OMITTED] 36818.012
[GRAPHIC] [TIFF OMITTED] 36818.013
[GRAPHIC] [TIFF OMITTED] 36818.014
[GRAPHIC] [TIFF OMITTED] 36818.015
[GRAPHIC] [TIFF OMITTED] 36818.016
[GRAPHIC] [TIFF OMITTED] 36818.017
[GRAPHIC] [TIFF OMITTED] 36818.018
[GRAPHIC] [TIFF OMITTED] 36818.019
[GRAPHIC] [TIFF OMITTED] 36818.020
[GRAPHIC] [TIFF OMITTED] 36818.021
[GRAPHIC] [TIFF OMITTED] 36818.022
[GRAPHIC] [TIFF OMITTED] 36818.023
[GRAPHIC] [TIFF OMITTED] 36818.024
[GRAPHIC] [TIFF OMITTED] 36818.025
[GRAPHIC] [TIFF OMITTED] 36818.026
[GRAPHIC] [TIFF OMITTED] 36818.027
[GRAPHIC] [TIFF OMITTED] 36818.028
[GRAPHIC] [TIFF OMITTED] 36818.029
[GRAPHIC] [TIFF OMITTED] 36818.030
[GRAPHIC] [TIFF OMITTED] 36818.031
[GRAPHIC] [TIFF OMITTED] 36818.032
[GRAPHIC] [TIFF OMITTED] 36818.033
[GRAPHIC] [TIFF OMITTED] 36818.034
[GRAPHIC] [TIFF OMITTED] 36818.035
[GRAPHIC] [TIFF OMITTED] 36818.036
[GRAPHIC] [TIFF OMITTED] 36818.037
[GRAPHIC] [TIFF OMITTED] 36818.038
[GRAPHIC] [TIFF OMITTED] 36818.039
[GRAPHIC] [TIFF OMITTED] 36818.040
[GRAPHIC] [TIFF OMITTED] 36818.041
[GRAPHIC] [TIFF OMITTED] 36818.042
[GRAPHIC] [TIFF OMITTED] 36818.043
[GRAPHIC] [TIFF OMITTED] 36818.044
[GRAPHIC] [TIFF OMITTED] 36818.045
[GRAPHIC] [TIFF OMITTED] 36818.046
[GRAPHIC] [TIFF OMITTED] 36818.047
[GRAPHIC] [TIFF OMITTED] 36818.048
[GRAPHIC] [TIFF OMITTED] 36818.049
[GRAPHIC] [TIFF OMITTED] 36818.050
[GRAPHIC] [TIFF OMITTED] 36818.051
[GRAPHIC] [TIFF OMITTED] 36818.052
[GRAPHIC] [TIFF OMITTED] 36818.053
[GRAPHIC] [TIFF OMITTED] 36818.054
[GRAPHIC] [TIFF OMITTED] 36818.055
[GRAPHIC] [TIFF OMITTED] 36818.056
[GRAPHIC] [TIFF OMITTED] 36818.057
[GRAPHIC] [TIFF OMITTED] 36818.058
[GRAPHIC] [TIFF OMITTED] 36818.059
[GRAPHIC] [TIFF OMITTED] 36818.060
[GRAPHIC] [TIFF OMITTED] 36818.061
[GRAPHIC] [TIFF OMITTED] 36818.062
[GRAPHIC] [TIFF OMITTED] 36818.063
[GRAPHIC] [TIFF OMITTED] 36818.064
[GRAPHIC] [TIFF OMITTED] 36818.065
[GRAPHIC] [TIFF OMITTED] 36818.066
[GRAPHIC] [TIFF OMITTED] 36818.067
[GRAPHIC] [TIFF OMITTED] 36818.068
[GRAPHIC] [TIFF OMITTED] 36818.069
[GRAPHIC] [TIFF OMITTED] 36818.070
[GRAPHIC] [TIFF OMITTED] 36818.071
[GRAPHIC] [TIFF OMITTED] 36818.072
[GRAPHIC] [TIFF OMITTED] 36818.073
[GRAPHIC] [TIFF OMITTED] 36818.074
[GRAPHIC] [TIFF OMITTED] 36818.075
[GRAPHIC] [TIFF OMITTED] 36818.076
[GRAPHIC] [TIFF OMITTED] 36818.077
[GRAPHIC] [TIFF OMITTED] 36818.078
[GRAPHIC] [TIFF OMITTED] 36818.079
[GRAPHIC] [TIFF OMITTED] 36818.080
[GRAPHIC] [TIFF OMITTED] 36818.081
[GRAPHIC] [TIFF OMITTED] 36818.082
[GRAPHIC] [TIFF OMITTED] 36818.083
[GRAPHIC] [TIFF OMITTED] 36818.084
[GRAPHIC] [TIFF OMITTED] 36818.085
[GRAPHIC] [TIFF OMITTED] 36818.086
[GRAPHIC] [TIFF OMITTED] 36818.087
[GRAPHIC] [TIFF OMITTED] 36818.088
[GRAPHIC] [TIFF OMITTED] 36818.089
[GRAPHIC] [TIFF OMITTED] 36818.090
[GRAPHIC] [TIFF OMITTED] 36818.091
[GRAPHIC] [TIFF OMITTED] 36818.092
[GRAPHIC] [TIFF OMITTED] 36818.093
[GRAPHIC] [TIFF OMITTED] 36818.094
[GRAPHIC] [TIFF OMITTED] 36818.095
[GRAPHIC] [TIFF OMITTED] 36818.096
[GRAPHIC] [TIFF OMITTED] 36818.097
[GRAPHIC] [TIFF OMITTED] 36818.098
[GRAPHIC] [TIFF OMITTED] 36818.099
[GRAPHIC] [TIFF OMITTED] 36818.100
[GRAPHIC] [TIFF OMITTED] 36818.101
[GRAPHIC] [TIFF OMITTED] 36818.102
[GRAPHIC] [TIFF OMITTED] 36818.103
[GRAPHIC] [TIFF OMITTED] 36818.104
[GRAPHIC] [TIFF OMITTED] 36818.105
[GRAPHIC] [TIFF OMITTED] 36818.106
[GRAPHIC] [TIFF OMITTED] 36818.107
[GRAPHIC] [TIFF OMITTED] 36818.108
[GRAPHIC] [TIFF OMITTED] 36818.109
[GRAPHIC] [TIFF OMITTED] 36818.110
[GRAPHIC] [TIFF OMITTED] 36818.111
[GRAPHIC] [TIFF OMITTED] 36818.112
[GRAPHIC] [TIFF OMITTED] 36818.113
[GRAPHIC] [TIFF OMITTED] 36818.114
[GRAPHIC] [TIFF OMITTED] 36818.115
[GRAPHIC] [TIFF OMITTED] 36818.116