FHA’s Galante Commits to Underwriting Reforms

Weeks after ""HUD"":http://portal.hud.gov/hudportal/HUD Secretary Shaun Donovan defended her performance in front of a ""Senate banking committee"":https://themreport.com/articles/hud-secretary-testifies-on-potential-fha-bailout-2012-12-06, ""Federal Housing Administration"":http://portal.hud.gov/hudportal/HUD (FHA) Acting Commissioner Carol Galante may have earned a new ally on Capitol Hill.

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Senator ""Bob Corker"":http://www.corker.senate.gov/public/ (R-Tennessee) announced he ""feels comfortable supporting [Galante's] bid to become FHA commissioner after receiving a ""letter detailing her commitment"":http://www.corker.senate.gov/public/_cache/files/940b16a2-a401-418f-b409-5dca6e176c42/12-18-12_Letter%20from_Carol_Galante.pdf to reforming FHA's underwriting requirements and restoring its Mutual Mortgage Insurance (MMI) Fund to health.

Both Donovan and Galante have been answering criticism in the wake of the revelation that FHA may be headed toward its ""first-ever taxpayer bailout"":https://themreport.com/articles/drop-in-fha-insurance-fund-sparks-talk-of-treasury-draw-2012-11-16. Many critics have pointed to FHA's underwriting standards as an example of the agency's unsustainable model, and one even ""accused FHA"":https://themreport.com/articles/aei-report-calls-out-fhas-abusive-lending-practices-2012-12-14 of engaging in ""abusive practices.""

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Galante's letter to Corker outlines a number of steps designed to strengthen the quality of FHA's new business, including increasing underwriting criteria for borrowers with lower FICO scores, increasing the down payment requirement and insurance pricing for high-balance loans, and beefing up underwriting requirements for borrowers who have been foreclosed on within the last three years.

In addition, Galante plans to place a moratorium on the full drawdown reverse mortgage program while the agency examines the program's viability. According to an actuarial report of FHA's finances for fiscal year 2012, $2.8 billion of the agency's currently projected $16.3 billion deficit can be traced to its reverse mortgage program.

In her letter to Corker, Galante offers her word that these reforms will be acted on by January 31 of next year.

""I've been working closely with Secretary Donovan and Acting Commissioner Galante over the past few weeks on ways we can put FHA on sound financial footing. While this is only a first step, I am encouraged that Acting Commissioner Galante has committed to structural reforms that we both believe put FHA in a much stronger position,"" Corker said.

He added that ""[g]iven the reforms she is committed to, I believe that having an accountable commissioner with her resolve and expertise will be in the best interest of the taxpayer.""