AG candidate decries FHA plan to boost loan requirements

Chris Rizo Dec. 3, 2009, 4:10pm

Ted Lieu (D)

Shaun Donovan

SACRAMENTO, Calif. (Legal Newsline)-It would be wrong to ask Americans to come up with more money to qualify for a federally-backed home loan, a California candidate for attorney general said Thursday.

State Assemblyman Ted Lieu, D-Torrance, said a proposal to change Federal Housing Administration loan requirements would disadvantage Californians and residents of other states with higher than average home prices.

The plan also calls for an increase in upfront mortgage insurance payments to qualify for an FHA mortgage. The move would force home lenders to shoulder more liability.

"I commend the Federal Housing Administration for all of their actions to help stabilize the housing market," Lieu said, adding that the plan would be "a step in the wrong direction."

He said in addition to disadvantaging California buyers, the plan would hinder the Golden State's beleaguered economy from recovering as quickly as it perhaps would without the plan.

"We are still in the midst of the worst recession since the Great Depression," he said. "While the stock market is improving, the housing market is still clearly on the rocks. States like California need these FHA loans to help our economy recover."

The percentage of home mortgages insured by the Federal Housing Administration has risen from 6 percent in 2007 to nearly 30 percent in 2009.

The FHA's proposed changes are aimed at lessening risk in its portfolio. U.S. Housing and Urban Development Secretary Shaun Donovan outlined the plan in congressional testimony he gave Wednesday.

His testimony follows an audit last month that indicates the Federal Housing Administration's reserve fund has sunk to 0.53 percent of its insured mortgage portfolio, or $3.6 billion, far below the minimum 2 percent required by law.

But rather than raise upfront costs, Lieu said federal officials ought to instead reduce the number of mortgage defaults by targeting unscrupulous lenders and overhaul their own internal controls.

"FHA is right to look for ways to reduce their risk," he said. "But they shouldn't forget that their defaulted risk comes when a distressed homeowner can't pay the monthly payment - not the closing costs."

Lieu is among five Democrats and one Republican vying to succeed Democrat Jerry Brown as the state's chief legal officer nest year.

More News