In the current credit squeeze, if you have less than a 20 percent down payment, there's pretty much only one major source of mortgage financing available: the Federal Housing Administration, the Depression-era home loan insurance agency that still offers 3 percent down, 30-year fixed-rate mortgages with consumer-friendly credit standards, even on jumbo loans in high-cost areas.
But there is a potentially troublesome problem looming for FHA: New loan volume is exploding - tripling in the past 12 months alone - and Congress just handed the agency the responsibility for virtually all the government's efforts to keep economically distressed homeowners out of foreclosure by refinancing their unaffordable loans.
FHA says it needs to hire more staff and upgrade its technology to handle the crush of new business, but it complains that Congress hasn't appropriated the necessary funds - $65 million - to do the job fast enough. Capitol Hill appropriations committee staff dispute some of that, but the specifics of the arguments over dollar amounts aren't the issue.
The real question is this: Can a government agency whose market share dropped below 3 percent during the heydays of the subprime boom now properly handle explosive volume, rocketing it to a market share 10 times its low point - an estimated 30 percent this year? Are both the agency and Congress, which controls the purse strings, up to the task?
Mortgage industry, homebuilding and real estate experts worry about the consequences of shifting too heavy a share of the mortgage market too quickly to an agency that may be inadequately staffed or funded by Congress. Howard Glaser, who served as acting general counsel for the Department of Housing and Urban Development, the parent department for FHA, during the Clinton administration, worries that loading on too much business without properly funding staff increases and technology upgrades raises the odds of future breakdowns.
"FHA is assuming the risks of a mortgage market abandoned by private investors - without the risk management tools," he said. "My fear is that next year at this time, we will be debating an FHA bailout."
Steve O'Connor, senior vice president of the Mortgage Bankers Association, agreed there's danger lurking in the huge increases in loan business going to FHA. "You just can't expect to fit that amount down the same size pipe - you've got to expand the size of the pipe" by funding additional staff and upgraded technology, he said. "It's a very serious concern."
The National Association of Home Builders and the National Association of Realtors have similar worries. Dick Gaylord, president of the Realtors, said if FHA "is truly going to serve its growing constituency," its staffing and funding will need to expand.
FHA is now insuring more than 140,000 new loans a month, according to agency statistics. It has $400 billion in outstanding loan balances in its insurance portfolio and runs its home-mortgage business with 937 employees in offices around the country. The agency wants authorization to immediately add 160 employees