Expecting too much from FHA?

The Mortgage Bankers Association wrapped up its annual convention today in Boston, and the adjective often used to describe the atmosphere while I was there Monday and Tuesday was "subdued."

At 4,500, attendance was down about 25 percent from last year. That's still more than showed up in 2005, and the joke making the rounds was that it was the industry's biggest job fair.

No panic, but a lot of frank discussion about if and when the investors who bought up all those mortgage-backed securities that fueled the housing boom will be ready to touch anything that doesn't meet with the approval of the FHA, Fannie Mae or Freddie Mac.

After sharing a story about a great Kenny Burrell show he caught last month at the Oakland, Calif. jazz club Yoshi's, MBA Chief Economist Doug Duncan got up and told a roomful of reporters that he thinks it will be nine months or so before investor confidence returns to the market for asset-backed securities.

The MBA predicts mortgage originations will dip below the $2 trillion mark next year for the first time since 2000, and that layoffs in the industry will ultimately total 110,000, leaving less than 400,000 people working in mortgage lending (see Inman News story). Asked what the new hot loan was, Duncan nominated the 30-year-fixed mortgage.

At a couple of panel discussions Monday, it was almost shocking to hear the CEOs of Option One, National City and Chase's mortgage division singing the praises of FHA loan guarantee programs (see story). As a GAO report out yesterday noted, during the boom years, subprime lenders picked up market share the fastest in Census tracts with lower median incomes and higher concentrations of minorities -- the same areas where FHA lost the most market share.

Of course, you can blame that on FHA's alleged failure to adapt to the times, which is exactly what the private-label lenders did.

It's a given that all lenders are looking to "get back to the basics," said David Lowman, chief executive officer of global mortgage at Chase. But for the FHA, that would mean going back to the 1960s, Lowman said, cracking wise. "We have to at least get (FHA) to the 1990s."

The Bush administration has placed almost all of its housing downturn crisis avoidance eggs in the FHA basket (that, and financial counseling -- rejecting calls to cut Fannie and Freddie loose to buy up more loans). But some worry that all the bureaucratic hoops involved in obtaining FHA loan gaurantees will slow the introduction of new programs intended to help higher risk borrowers and those who are already delinquent.  ("The back end will kill you every time," Lowman said.)

"They do seem to be intent on moving down this path," but only time will tell how quickly originators can incorporate new guarantee programs into the systems they use to originate loans, said National City CEO "Buck" Bibb. FHA seems to have underestimated the magnitude of the problem, Bibb said, which could affect the initial success of a plan to allow FHA to serve more borrowers by offering risk-based pricing.

Secretary of Housing Alphonso Jackson, warming up the crowd Tuesday for a speech by Bono, said that if Congress finally gets its act together and passes an FHA modernization bill, about 800,000 borrowers would be able to take advantage of its loan guarantee programs in the next two years.

When I asked Jackson's deputy, Assistant Secretary for Housing Brian Montgomery, about doubts Bidd and others have expressed that FHA can implement change on the fly, he acknowledged that they have just four months to go from one product line to six or seven (the FHASecure program for delinquent borrowers was rolled out in September. Risk-based pricing will be introduced on a limited scale in January, and expanded if Congress passes an FHA modernization bill).

Montgomery said FHA anticipates bringing 1,000 new lenders on board as it adopts risk-based pricing. While it has almost completed the needed changes to its own systems, it's sympathetic to the problems lenders will face -- especially smaller ones -- in adapting their own software, he said. The FHA, Montgomery joked, still relies on computers programmed in Fortran. If the government can do it, he said, lenders can too (he WAS joking about Fortran, right? I would have imagined COBOL).

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