FHA Response to Editorial
Regarding FHA Reform

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Letters to the Editor
Originally published July 7, 2006 Baltimore Sun

Modernizing FHA Can Aid Homebuyers

When the author of "FHA must not abandon its mission" (Opinion o Commentary, June 28) testified at a House hearing on April 5, she received bipartisan criticism for her misleading and inaccurate portrait of proposed legislation to modernize the Federal Housing Administration. Reps. Maxine Waters (a Democrat) and Gary G. Miller (a Republican), in particular, took great exception to her argument that the proposal would make FHA mortgage financing more costly for lower-income homebuyers.

In fact, the legislation would do exactly the opposite.

A modernized FHA would charge borrowers less than the rates they can get under the two alternatives currently available to credit-impaired borrowers - taking out "sub-prime" loans with substantially higher interest rates or taking market-rate loans with expensive private mortgage insurance.

The author is right, however, when she states that "it is important that the FHA remain relevant in today's lending market."

That's exactly the intent of the proposed legislation.

For years, the FHA has been hampered by outdated legislation that constrains the agency's ability to reach the very people it's supposed to serve.

Antiquated down-payment requirements, unrealistic loan limits and a "one-size-fits-all" insurance premium structure are driving first-time homebuyers and those with lower incomes or impaired credit away from the FHA and toward more costly mortgage alternatives.

Lenders, real estate agents, mortgage brokers and homebuilders all understand that the FHA does not compete with the industry. In fact, the FHA complements the private market and expands the borrower pool, resulting in more business for everyone.

In addition, low- to moderate- income homebuyers would be the prime beneficiaries of this legislation - they'll get a safer mortgage at a fair price.

Brian D. Montgomery
Washington

The writer is federal housing commissioner for the Department of Housing and Urban Development.