Senator Bob Corker, R-Tn., a member of the Senate Banking, Housing and Urban Affairs Committee, on Tuesday announced that after securing a commitment from Federal Housing Administration Acting Commissioner Carol Galante to make substantial changes to FHA underwriting requirements, he feels comfortable supporting her bid to become FHA commissioner.
Ms. Galante sent Senator Corker a letter Tuesday committing unequivocally to important reforms to be put in place by Jan. 31, 2013. A copy of the letter can be found here.
Senator Corker said, “I’ve been working closely with Secretary Donovan and Acting Commissioner Galante over the past few weeks on ways we can put FHA on sound financial footing. While this is only a first step, I am encouraged that Acting Commissioner Galante has committed to structural reforms that we both believe put FHA in a much stronger position. Given the reforms she is committed to, I believe that having an accountable commissioner with her resolve and expertise will be in the best interest of the taxpayer."
Ms. Galante has committed to:
· Place a moratorium on the full drawdown reverse mortgage program to assess its viability after $2.8 billion in losses.
· Substantially increase underwriting criteria for borrowers with FICO scores between 580 and 620 by establishing a meaningful maximum debt-to-income ratio. This will dramatically decrease borrower default rates.
· Increase the down payment requirement and the insurance pricing for loans between $625,000 and $729,000 to protect FHA against loss on high balance loans that are outside Fannie and Freddie conforming loan limits. This will also help to scale back the government’s footprint in the housing market.
· Increase underwriting requirements for borrowers who have been foreclosed upon within the last seven years.
Senator Corker has continually expressed concerns over the pace of reforms at FHA, most recently raising several issues with Housing and Urban Development (HUD) Secretary Shaun Donovan at a December 6 banking committee hearing on the state of FHA’s financial condition. A transcript of the hearing can be found here.