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» Lots of other national field service providers talk about quality ... But ask them about their claims against their liability insurance ... And they get that VISIT US ONLINE @ DSNEWS.COM NFN keeps clients afloat with its stellar record of ZERO claims last year. RISK IS A SERIOUS MATTER. Let National Field Network navigate the treacherous waters of default for you. sinking feeling. National Field Network 4581 Route 9, Suite 100 Howell, NJ 07731 732-276-5563 www.NationalFieldNetwork.com DONOVAN QUESTIONED BY SENATE COMMITTEE ON FHA'S FINANCES Testifying before the Senate Banking Committee in early December, HUD Secretary Shaun Donovan defended the Federal Housing Administration's (FHA) role in the housing market and the steps the agency has taken to avert a taxpayer bailout. In an annual report issued to Congress in mid-November, HUD revealed the capital reserve ratio of FHA's Mutual Mortgage Insurance (MMI) Fund had fallen to -1.44 percent (representing a dollar value of -$16.3 billion), according to the assessment of an independent actuary. HUD's report has many analysts, policymakers, and trade groups speculating about the likelihood of an imminent Treasury draw to keep FHA afloat. While Donovan acknowledged that a bailout is a possibility, he said the agency won't have a clearer picture until the president's budget is released. The answer provided little comfort for the committee, which pointed out the "worst case scenario" interest rates used in the FHA actuarial report are actually higher than current rates. Rock-bottom mortgage rates have had an estimated negative impact on the agency's finances of roughly $10 billion. In response, Donovan argued that other factors—such as home prices, which have improved beyond the report's projections—are mitigating the effect of low rates. He also noted the actuarial report assumes no new business will be added to FHA's books and that the agency will take no steps to improve its financial position. HUD's report to Congress outlined several actions FHA intends to take to return its MMI Fund to positive territory, including raising premiums slightly, reversing a previously enforced policy that called for premiums to be canceled after a certain period for new loans going forward, and revising its loss mitigation strategies. Changes to the agency's loss mitigation programs are already underway. In late November, FHA announced revisions designed to expand the number of borrowers eligible for assistance and increase the level of assistance available, ultimately reducing the number of claims against the agency's MMI Fund and reducing losses from foreclosures. Some of the changes include expanding FHA's Home Affordable Modification Program (HAMP) and eliminating some requirements that limit a lender's ability to provide assistance. "We think with a set of changes that we are already taking … those alone could add about $3 billion to the fund over the next couple years," Donovan told lawmakers. Where HUD and FHA need help, he said, is an area that requires legislation. He argued that the agencies need enhanced enforcement authority to recover money lost from lenders. The FHA is also hurting from excessively high loan limits, an obstacle Donovan feels HUD is powerless to overcome on its own. "We support our loan limits coming down, and they were supposed to expire [in 2011]. Congress made the decision to lower the GSEs' loan limits but kept the FHA's higher level," Donovan said. He also remarked that, given Congress' decision to extend the higher limits, HUD could not act on its own to bring them down. 33

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