The Federal Housing Administration is ready to join the 21st century — and not a moment too soon.
The government-owned mortgage insurer is trying to hire an outside contractor to upgrade its antiquated information systems, the American Banker reports. The paper says the FHA has sent out a request for proposals that describes its current setup – including its risk management techniques — as “outdated.”
For instance, the ad says the agency’s loan-level reviews “lack the detail necessary to swiftly and efficiently identify loans that have the potential to result in delinquency, default and/or foreclosure.”
This is not exactly comforting, given the FHA’s expanding role in propping up the U.S. Housing market (see chart at right), the agency’s stretched finances and the fact that its delinquency rates are already through the roof.
Just this week we got a sobering reminder of the FHA’s immense vulnerability. Federal officials alleged that Lee Farkas, once the CEO of Florida mortgage lender Taylor Bean & Whitaker, bilked the FHA and its sister agency, Ginnie Mae, of at least $3 billion by selling bad loans. The authorities said the TBW losses were the agencies’ worst ever.
A few years back the FHA insured a modest share of home loans, focusing on fixed-rate loans to lower-income borrowers. But since then the private mortgage lending collapsed, and policymakers have pulled every lever they can reach to prop the market up.
As a result, the FHA may have insured more mortgages in the first quarter than did its widely mocked peers Fannie Mae and Freddie Mac. Even the FHA’s head, David Stevens, sees the government’s near monopoly in recent years as problematic.
He told Bloomberg last month that “having FHA do this much volume is a sign of a very sick system.”
Many fear that it’s only a matter of time till the housing sickness costs taxpayers even more. The FHA, part of the federal department of Housing and Urban Development, said late last year that its cushion against losses had shrunk to just 53 cents of capital for every $100 of loan guarantees.
More borrowers have been falling behind on payments, leaving some hard-hitters to wonder why the agency hasn’t disclosed more information about funds it might be able to recoup from the banks and other originators of soured mortgages.
Stevens has been lauded for trying to bring the agency up to speed, by tightening standards and bolstering its finances. Congress is now considering a bill that would give the FHA more power to force the mortgage companies that sell FHA-backed loans to abide by the agency’s guidelines.
To all these measures, and the FHA’s intended systems upgrade, Street Sweep can only say: Godspeed.