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» decision right then. If they decide to take that loan FHA, no MI has the opportunity to insure that loan. As a result of that we've done a lot of training. We trained over 16,000 [loan officers] last year, 10,000 the year before, and 4,000 in the first quarter of 2012." Loan officers can originate a qualifying loan into either conventional or government channels. What matters to an originator is ease of process, ease of approval, and volume of originations. No matter the situation, the risk of loan put-backs, or recession, should also be part of the equation, and of course, price matters most to the borrower. Private insurers' price reductions reveal their understanding of borrowers' sensitivity to the additional cost that come with being a property owner. Risky Business At Radian, Bazemore and her team seek to highlight differential strengths of private mortgage insurance so that loan officers will present conventional and FHA options even handedly to borrowers. Bazemore says in conjunction with this, the company has sought to make it simpler for lenders to do business with private MIs by improving connectivity with loan originating systems. Although price and in some cases, access at all to mortgage financing directs origination decisions, risk should still be factored into the type of insurance backing low downpayment loans. Bazemore provided anecdotal support of how access issues at the height of the housing crash funneled originations to the FHA and patterns stuck. "Someone was sharing with me that in some institutions a lot of the loan officers have been there maybe five to seven years. Those loan officers were often focused on piggyback loans in, say, the 2004, 2005, 2006 time frame. When the piggybacks essentially started pulling out of the market in 2007 and were virtually not there in 2008, many of these loan officers picked up FHA because the rest of the industry, the MIs, Fannie and Freddie, we were all sort of repositioning our underwriting guidelines." The FHA played the role of lender of last resort and experienced an unprecedented portfolio increase. There is risk in this, as the FHA lacks experience managing a portfolio of this scale. FHA loans are 100 percent backed by the U.S. government, and thus the risk that comes with the acute increase in the agency's portfolio falls directly to the American taxpayer. This risk is growing greater, even with a government guarantee. The sheer conditions of the marketplace today and the almost common incidence of borrower default have saddled the agency with losses . . . and the claims are still rolling in. The FHA has begun to more aggressively challenge payouts and, in turn, issue its own buyback claims, which puts the originating lender on the hook should investigations uncover anything in the underwriting process that doesn't fit the federal agency's guidelines. The number of buyback claims issued by the FHA during the first three months of 2012 probably isn't that high, but going back over the course of the last few years, the agency has VISIT US ONLINE @ DSNEWS.COM With the weight of the U.S. government as its backstop, FHA has an advantage when it comes to pricing that private mortgage insurers don't have. The agency hasn't abused that added benefit though. In fact, as the private sector strives to keep pace, FHA has consistently remained just a little bit out of reach. The cat-and-mouse chase between the two dueling insurance factions has brought about more efficient and productive competition, which benefits both the providers and consumers. All this hasn't come without a price, however. FHA has struggled to maintain its footing through it all–never yet faltering, but certainly on shaky ground. A third-party audit of the agency's books revealed its funds nearly completely depleted. Analysts have warned there's a 50-50 chance the federal mortgage insurer could need FHA loans are 100 percent backed by the U.S. government, and thus the risk that comes with the acute increase in the agency's portfolio falls directly to the American taxpayer. demonstrated a resilient fervor for "sticking it to" anyone who tried to step up and challenge its hold on the market. While government officials like to give lip service to the idea of withdrawing their dominating presence from the nation's housing finance chain, their policies and proposals pave a starkly different path. Lawmakers extension of higher loan limits for FHA is not in line with shrinking government involvement in housing. FHA is quick to point out that it did not advocate for a larger role in the marketplace and a larger piece of the pie. That mandate came from Congress, and the constituents most in favor of ballooning the federal agency's holdings were Realtors. They too were the most vocal lobbyists petitioning Congress to reinstate the higher ceiling for the federal mortgage insurer. a bailout of its own. While agency officials adamantly refute such claims, it has been nearly three years now that FHA has been operating illegally. As mandated by law and congressional order, FHA must maintain a capital reserve ratio of at least 2 percent above the size of its business. The agency's reserves slipped below that threshold for the first time in its 77-year history in September 2009, and they've been heading further south ever since. Some caution the federal agency could track the same recovery lines as the nation's hardesthit markets. Government officials, however, point to steps already being taken to boost revenues while reducing FHA's footprint. The agency's recent premium increase, for example, is expected to contribute more than $1 billion to its reserves through fiscal year 2013 while encouraging private capital to take on more market share. 75

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