Here's how HUD plans to ensure affordability is part of housing finance reform

The Department of Housing and Urban Development (HUD), in coordination with the Treasury Department, has laid out a plan that it says will protect taxpayers from the risk of reforming the housing finance system.

While the Treasury Department’s plan focused on privatizing Fannie Mae and Freddie Mac, HUD’s blueprint concentrated on ensuring that the Federal Housing Authority (FHA) has the necessary tools to manage risk associated with the privatization of the government-sponsored enterprises.

In the reform plan, HUD calls for funds to update FHA’s IT platforms. It aims to share technology with Ginnie Mae and other government-backed mortgage programs and develop a mortgage origination risk tool, which integrates an automated underwriting system (AUS) platform, appraisal scorecard, risk assessment tool, and third-party verification services.

The department also proposed to restructure FHA as an autonomous corporation within HUD. The autonomy means that FHA would have more control over its staff, procurement, and technology.

Under the reorganization, HUD would split its mortgage insurance and rental assistance programs into separate offices. Moreover, the blueprint suggested creating a new Office of Rental Subsidy and Asset Oversight, as well as a separate Office of Native American Programs to reduce regulatory and administrative burdens.

“FHA and Ginnie Mae should focus on helping families and individuals in their respective programs become sustainable homeowners while minimizing risk to the taxpayer to the greatest extent possible,” said Brian Montgomery, commissioner and assistant secretary of housing at FHA.

HUD’s Housing Finance Reform Plan also intends to:

• Separate the position of the federal housing commissioner from the position and responsibilities of the assistant secretary for housing
• Develop a tiered pricing system to ensure that FHA’s Mutual Mortgage Insurance Fund (MMIF) and taxpayers are protected from riskier loans
• Develop servicing standards for the Home Equity Conversion Mortgage (HECM) program to lower operational and financial costs on servicers
• Remove HECM-to-HECM refinancing
• Consider proposals to modify single-family housing mortgages and promote more entry-level housing particularly manufactured housing
• Realign internal responsibilities, as well as create new positions and processes to strengthen counterparty risk management ability
• Enable Ginnie Mae to adjust its guarantee fee within a narrow, permissible range