Ben Carson, MD, Secretary of the Department of Housing and Urban Development (HUD) told the House Financial Services Committee on Wednesday that his department has made "tremendous progress" since he last testified before them in October. Citing his background as a physician he said HUD has taken a leadership role in helping Americans recognize the connection between health and housing. One area where it has made a significant contribution is in reducing childhood lead poisoning. HUD supports 120 local lead hazard control programs and has awarded more than a thousand grants to remove lead from 200,000 homes since 1993.
June is "National Homeownership Month," and Carson praised HUD's efforts to support responsible homeownership through the FHA. One of the first actions the current administration took was to suspend the prior administration's proposed cut to FHA's mortgage insurance premiums which Carson said could have pushed FHA's capital reserves below their congressionally mandated levels.
Carson claimed his department has also placed the Home Equity Conversion Mortgage (HECM) program's finances on a sounder footing after the program drained FHA's Mutual Mortgage Insurance (MMI) Fund of $14.5 billion of economic value since 2009. Monitoring of the program is ongoing to determine what additional changes may be needed to ensure this program remains an option for seniors.
HUD also stopped insuring new mortgages on properties encumbered with Property Assessed Clean Energy (PACE) obligations. These obligations, which take a first lien position, increase risks to FHA's MMI Fund and may have serious consequences on consumers' ability to repay, or when they attempt to refinance their mortgage or sell their home.
The Secretary said maintaining the health of the MMI Fund is critical if FHA is to continue as an affordable source of credit for first-time, low- and moderate-income, and minority homebuyers. HUD is carefully scrutinizing policies that go beyond FHA's core mission to keep track of any concerning trends such as the growing share of cash-out refinances. These have increased from about 45 percent of refinances in April 2017 to over 60 percent in April 2018.
Among other risk concerns is a rise in debt-to-income (DTI) levels. Carson said this past April about a quarter of FHA home purchasers left the closing table with DTIs at or above 50 percent compared to one-in-five borrowers a year earlier.
The single-family portfolio also recently experienced an increase in both early stage and serious delinquencies. In part this was due to the 2017 hurricanes and seasonality and the incidence of non-current loans has begun to moderate. Still there are worries that the increases may be partly due to a decrease in mortgage credit quality.
Carson said managing risk also requires good technology and FHA can no longer put off substantial investments in its systems. The agency's mainframe is over 40 years old and some staff still work from paper case files producing inefficiencies and risks to qualify control. HUD has proposed a $20 million budget for targeted improvements in single-family Information Technology (IT) which will be funded by a modest single-family IT fee of no more than $25 per loan.
HUD also operates the Government National Mortgage Association (Ginnie Mae) which is responsible for attracting capital and providing liquidity to the nation's home mortgage market, especially for low- and moderate-income borrowers and veterans. Ginnie oversees the safety and soundness over $2 trillion in mortgage-backed securities and has, along with the Department of Veterans Affairs, acted to address abusive "churning," the practice of encouraging veterans to refinance their mortgages repeatedly, depleting their equity, and increasing their risk of foreclosure.
HUD formally launched its first EnVision Center earlier this month. It is located in Detroit and 16 additional demonstration sites are planned nationwide. These centers, located on or near public housing developments, offer HUD-assisted families a range of support services designed to promote economic empowerment, educational advancement, health and wellness, and character and leadership. The centers are being developed in partnership with other federal agencies, state and local governments, non-profits, faith-based organizations, corporations, public housing authorities, and housing finance agencies,
The Department's combined rental assistance programs account for 80 percent of HUD's annual budget and the cost of serving the same number of households increases each year. Demand for these programs far exceeds available resources, a condition which has existed for many years. HUD currently serves 4.7 million low-income families, more than half of whom are seniors and persons living with disabilities, and it is estimated only one in four households that qualify for HUD assistance receives it.
HUD's rent policies have changed little since the early 1980s and methods to calculate eligibility and assistance levels are complicated and a disincentive to employment and income growth. Owners and Public Housing Authorities (PHAs), many with limited staff, must spend hours calculating the correct payments from families, who themselves are often confused by byzantine rent rules for income and rent calculations. The complex annual income recertification process creates a perverse set of conditions that increase the risk of inaccurate calculations and discourage progress toward self-sufficiency.
The Administration has proposed a simplified structure of core rents that streamline rent calculations and program administration. This system would require income verification every three years rather than annually, easing the burden on PHAs and owners and encouraging increased earned income while allowing up to three years before it impacts a household's rent. HUD would also create a menu of rent structures that PHAs and owners could implement, increasing local control and promoting flexibility. They will even be offered the option to create their own rent structures.
HUD has awarded more than $35 billion through the Department's Community Development Block Grant - Disaster Recovery fund; $19 billion for areas hit by the 2017 hurricanes and wildfires; the remainder for other Presidentially declared disasters since 2015.
HUD is also committed to making significant investments in the fight to end homelessness and currently chairs the United States Interagency Council on Homelessness. The Department's Point-in-Time count, conducted in January 2017, indicated homelessness was on the rise for the first time in a decade, primarily driven by high-cost housing markets along the east and west coasts. For FY19, HUD is requesting $2.383 billion, a $133 million increase over last year's request, which includes $40 million for rapid re-housing targeted to communities with high rates of unsheltered homelessness. HUD is also working through its Continuum of Care (CoC) program to confront substance abuse and addition issues. Last year, HUD grantees said 76,000, or approximately a quarter of those served through CoC funding, reported issues with substance abuse, including opioids. Carson stressed the importance of a housing finance reform plan that takes a holistic view of the whole system. HUD's plan, he said, includes a proposal that ensures more transparency and accountability to taxpayers and minimizes the risk of taxpayer-funded bailouts, while maintaining responsible and sustainable support for homeowners. He urged the lawmakers to support those recommendations.
