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» VISIT US ONLINE @ DSNEWS.COM INDUSTRY INSIGHT Even as officials profess less government involvement in housing, private mortgage insurers are forced to go head-to-head with the FHA. "For the first time in the history of the FHA [Federal Housing Administration], private mortgage insurance has to compete with the government on every loan," says Teresa Bryce Bazemore, CEO of Radian, in framing the current market conditions private insurers face as they grapple to reclaim a larger share of the low down payment mortgage financing market. The economy continues to course a tepid route to recovery. Financial markets remain volatile as anxiety surrounds monthly data reports on jobs, production, and housing. Concerns of slowing growth in developing nations and European debt and recession worries temper participation in domestic capital markets. The housing market— historically a large, capital-rich component of the overall economy—remains fragile, mired in uncertainty of its own. Bazemore's reference of head-tohead competition with the government characterizes the tug-of-war currently taking place in the marketplace with the lingering high loan limits by which FHA continues to operate. Congress' extension of the higher loan limits for the federal mortgage insurer through 2013 only serves to amplify the ambiguity and skepticism that surrounds the housing finance system of the future. Bazemore's counterpart at Genworth Financial, president and CEO Kevin Schneider, is of the same mind. In an op-ed piece for American Banker, he stressed that first and foremost, the industry needs a comprehensive national housing finance policy that makes the rules of the road perfectly clear for everyone going forward. Only then can housing industry participants start planning how to operate effectively and profitably over the long-term, Schneider said. The government's stated aim—or goal—is to play a much-reduced role in the industry, but current legislation seems to counter progress toward this goal. Whether sluggish government drawback is a transitional timeframe issue or an indication that the housing finance market post-recovery will have a much larger government presence relative to the pre-bubble days is unknown. It is known that as long as the FHA operates under expanded loan limits, mortgage originators will continue to have expanded options for financing their customers' homes. Loan Limits Impeding Progress The extension of higher FHA loan limits is a recent example of action on Capitol Hill that hinders the reintroduction of private capital to the housing finance system. The raising of FHA's loan limits were part of the Housing and Economic Recovery Act (HERA) of 2008. This legislation established, for the first time, a separate high-cost area limit for conforming loans: $625,500 for standard conforming and $729,750 for high-balance conforming. The standard conforming mortgage size remained $417,000. At the same time, FHA's range of qualifying loan sizes was increased to be 65 percent of standard conforming limits minimally and allowed to match conforming loan size at the ceiling.  HERA was signed into law as an emergency measure to bolster the sinking housing market and hold off a complete paralysis of credit. This legislation hit its expiration date on several occasions but each time was reinstated by Congress, most recently on November 17 upon heavy lobbying by the housing industry. Congress restored FHA's loan limits to their $729,750 high mark for high-balance loans while maintaining conforming loans' "permanent" high-cost area loan limit at $625,500. The FHA's historical role has been to improve mortgage access for lower-income, first-time homebuyers, and minorities that may be underserved by the conventional, private market. Additionally, the FHA buffers the greater mortgage market in economic downturns.  "FHA has traditionally played a 'counter cyclical' role in the market. It steps up and takes on more when times are bad to ensure that mortgage funds remain available, and it steps back to play less of a role when times are good," according to Lemar Wooley, a HUD spokesman.   Loan limit expansions expedited the administration's role shift to lender-of-lastresort as conventional private mortgage financing evaporated with the housing collapse. FHA's market share increased from under 5 percent in 2007 to more than 20 percent in 2010 by dollar value. Measured by number of loans, the federal agency grew its market share even more markedly, from 6.6 percent in 2007 to 30.1 percent in 2008, peaking at 56.4 percent in 2009. The FHA's market share is currently just over 13 percent, falling within its historical average range of 10 to 15 percent. It is clear that during the market correction and because of the slow recovery, mortgage originations, while stunted in volume, have been funneled to the 73

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