HUD Secretary Looks for Housing to End Recession
Recognizing that a recovery in the nation’s housing industry is needed to help pull the nation’s weak economy out of today’s difficult recession, U.S. Housing and Urban Development Secretary Shaun Donovan on May 29 told home builders at NAHB’s spring board of directors meeting in Washington, D.C. that reforms are underway at HUD and the Federal Housing Administration to put the housing market back on track.
In his work with Congress to pass the Recovery Act, Donovan said, the President stated that “this economic downturn began with a downturn in the housing market and a recovery in our economy has to begin with the recovery in the housing market, as well.”
Bringing the Tax Credit to the Closing Table
In a move to further stimulate home sales across the country, Donovan announced that the FHA was allowing home buyers to apply the Obama Administration’s $8,000 first-time home buyer tax credit toward the purchase of an FHA-insured home.
Under new FHA rules, state housing finance agencies and other government entities can “monetize” up to the full amount of the tax credit to enable borrowers to immediately apply the funds toward their downpayments.
Home buyers who are using FHA-approved lenders can apply the tax credit to a downpayment beyond the 3.5% minimum required on an FHA-insured mortgage — or to their closing costs.
To read a related story in this issue of NBN on the new rules, click here; to read the FHA’s mortgagee letter on the new rules, click here and scroll down to Document Number 09-15.
Donovan cited estimates from NAHB that the tax credit would help to stimulate 160,000 incremental home sales — 101,000 to first-time buyers who receive the credit and another 59,000 to existing home owners who will be able to buy another home after selling their current home to a first-time buyer.
“Given FHA’s current market share, we believe that tens of thousands of families will be able to purchase a home by our actions today in allowing this tax credit to be applied toward their FHA-insured mortgage,” he said.
“I believe this policy is a real win for everyone,” Donovan said. “And today, we are, by doing this, taking another important step toward accelerating the recovery of the nation’s housing market.
“Families will now be able to apply this tax credit toward their home purchase right away. And at the same time, I want to be very clear, we are putting in place the necessary safeguards to ensure that consumers will be protected in using this.”
A Major Role for the FHA
Donovan added that the new policy on the tax credit would provide an important step in clearing away the overhang of housing supply that is standing in the way of a full-fledged housing recovery; and he said it was an example of how the FHA is now playing a major countercyclical role in the housing market.
Volume in the FHA’s flagship single-family program has surged from $60 billion in fiscal 2007 to an anticipated $290 billion in 2009. To meet the rising demand for FHA financing, Donovan said that HUD is asking for up to $400 billion in budget authority for FHA insurance commitments in 2010.
Just on the loans it originates next year, he said, the FHA believes it can generate a surplus of $1.7 billion.
“One of the primary reasons for that is that we have seen over the last year a dramatic increase in our credit scores within the FHA program, up from a year ago at 626 to, in our most recent date, an average credit score of 678.”
With the FHA reaching a 24% market share in the final quarter of last year, Donovan said that it has substantially stepped up its hiring to address personnel shortages and is in the process of modernizing the agency, with plans for a big increase next year in information technology investments to replace obsolete systems.
Reestablishing a Priority for Multifamily
Although much of the focus in the early months of the Administration has been on restoring the health of the single-family housing market, Donovan said that the HUD budget will also be reestablishing a priority for multifamily and rental markets that are “critically important” for low- and moderate-income households.
HUD has proposed a $1 billion capitalization of the National Housing Trust Fund to initiate the first new housing production program since the creation of the home investment partnerships program in 1990.
On May 4, it was announced that more than $5 billion in Recovery Act funding was being provided to finance the acquisition and construction of affordable housing through the Low-Income Housing Tax Credit at a time when close to 50% of all tax-credit deals in the country were stalled by the economic crisis.
Donovan said that HUD is putting $100 million into an energy innovation fund “that can go to support innovative lending products across the country that have spurred new developments, new standards for single-family and multifamily housing on energy efficiency."
A “Sustainable Communities” initiative, he said, will receive $150 million to help support higher density housing that is more integrated with the transportation needs of local residents.
Donovan entertained several questions from NAHB members following his presentation, and invited the association to work with him to find solutions on challenging issues.
Among the issues raised at the meeting were: finding a way to increase FHA limits in sub-markets; seeking changes that would allow organizations that are not affiliated with a labor union to access federal funding for training in green and energy-efficient technologies; taking a broad approach to solving the problem of distressed sales being used in the appraisal process; coordinating with other federal agencies to address the training needs presented by the Environmental Protection Agency’s lead-based paint rule; training lenders, appraisers and real estate brokers to recognize the benefits of green building; and stepping up support for rural housing programs.
“You are the National Association of Home Builders. You are about building for families, for communities, the single-most important building block of success in this nation,” Donovan said at the outset of his remarks.
“And despite the challenges that we have faced over the last few years, I believe very, very strongly that the work that you do continues to be the foundation of success and opportunity in this country.
“It’s the success upon which families and parents raise their children and provide them a place to grow up that is safe and secure, to get a decent education; all of the important things in rural communities and urban communities across this country that a family hopes for their children begins with home.
“And I want to thank you, through these challenging times, for your continuing commitment to making sure that American families have the access to that American dream.”
Photos by Herman Farrer