HUD’s day in the sun is deserved
The agency is to be applauded for its hurricane relief effort and other actions
Tom Kelly - Herald Columnist
In the past decade, the Department of Housing and Urban Development has been the subject of intense scrutiny - and the jokes that accompany that focus.
In fact, some members of Congress would like to see the Federal Housing Administration agency taken out of the Department of Housing and Urban Development and put into the private sector.
For years, government housing options - specifically FHA loans - were perceived as being heavily wrapped in red tape. Gordon Schlicke, who retired in 1998 as vice president of training and development for Mellon Bancorp after serving in a variety of Puget Sound banking positions, often targets HUD: “Of course your FHA loan is screwed up. Can you spell HUD backward?”
While the periodic dark side of the agency has surfaced over time (investigations of former secretaries, allegations that some programs were labeled “inept, detrimental and costly” by the Office of Inspector General), HUD and other government agencies are a critical part of the public housing landscape. The undeniable truth is that HUD has provided a variety of vital avenues toward homeownership that many conventional lenders historically had been too nervous to test.
The agency stepped up big time recently and provided a holiday gift for families in need when it withdrew an estimated 6,000 of its for-sale foreclosed homes from the market so they could be used by hurricane evacuees. These foreclosures are properties that have been acquired by lenders through the legal processes established by each state and are often referred to in the real estate mortgage and brokerage industry as real estate owned or REO.
The move enabled some folks to move out of hotel rooms and enjoy Christmas in real homes. The Department of Veterans Affairs and Fannie Mae, the nation’s biggest supplier of mortgage money, followed HUD’s lead by making a total of 2,500 of their foreclosed homes also available for Katrina and Rita victims. The homes are located in 11 states: Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, Oklahoma, South Carolina, Tennessee and Texas.
Let’s not forget that HUD is the agency that introduced and stood by the country’s most popular reverse mortgage product, and also a couple of its first cousins: low down-payments on first mortgages and the purchase-rehabilitation package known as the FHA 203K loan. Many private lenders have fostered their own forms of those plans, which consumers can find in today’s market - despite the calls by some critics to take the agency private.
(HUD believes if FHA went private, borrowers would be charged higher fees and interest rates than currently charged by FHA, resulting in fewer homeownership options. In addition, the department points to a task force conclusion that the sale of FHA to private owners would not attract any buyers offering a reasonable price.)
FHA insures loans so that if the borrower defaults, the lender is guaranteed to receive the outstanding mortgage amount. For the past 75 years, an FHA loan has been the primary low down payment option for home buyers. The popularity of FHA loans has dwindled in the past few years as the private market has grown more sophisticated and efficient at creating and providing mortgage money.
The FHA process burden was unraveled more than a decade ago when the agency gave “direct endorsement” authorization to private lenders so they could process loans without waiting for FHA approval. And, like all conventional loans made in this country, FHA could not avoid increasingly fatter files due to a variety of new disclosure forms and regulations.
A prime FHA target - first-time home buyers, many of whom are relatively new to the United States - are pushing the housing ladder. Analysts believe the immigrants hold the keys to the residential building industry, but also to critical segments of the economy. That’s because many newcomers pay cash, reducing the concerns of escalating consumer debt, except in big-ticket purchases like homes.
This Christmas will long be remembered along the Gulf Coast. Only the terrorist attacks of 2001 had the same level of impact on the financial and psychological activities of the nation’s consumers. Let’s all remember to give thanks for the roof over our heads - and for the agencies that provide roofs for others.
