Yesterday, the Obama administration announced the appointment of David Stevens to run the Federal Housing Administration (FHA). The appointment got little attention from the media, but his Senate confirmation hearing might prove more interesting. Stevens will have to explain his work for Freddie Mac in the years when the mortgage giant fueled a lending frenzy, mostly through Stevens’ own work on a program called Home Possible.
First, the announcement:
David Stevens, president and chief operating officer of real estate brokerage Long & Foster Cos., is President Barack Obama’s choice to head the Federal Housing Administration, according to people familiar with the selection.
Stevens, a former Freddie Mac mortgage executive, would replace Federal Housing Commissioner Brian D. Montgomery, who was appointed by President George W. Bush. The people familiar with Stevens’s selection declined to comment because the Obama administration has yet to make an announcement.
The FHA, a mortgage-insurance division of the U.S. Housing and Urban Development Department created in 1934, is regaining a larger role in the housing market as private insurers and lenders scale back, raise fees and tighten eligibility criteria. The agency said in a February report that applications tripled to 2.3 million in 2008, from 2007. FHA-insured loans represented 31 percent of new mortgages in the fourth quarter, the highest on record, according to newsletter Inside Mortgage Finance.
Stevens’ experience at Freddie Mac should prove instructive. The Home Possible program that Stevens launched practically gives a blueprint for the housing-bubble collapse and the government’s role in it:
“We created Home Possible Mortgages so more lenders can say ‘Yes’ to more borrowers,” said David Stevens, senior vice president of single family sourcing at Freddie Mac. “Home Possible is what our lenders tell us they need to compete in today’s market: a flexible, easy-to-use mortgage uniting Loan Prospector’s ease and efficiency with exceptionally low-downpayments and flexible credit. Perhaps no other mortgage product launched in recent memory will enable our lenders to reach and help as many additional borrowers as Home Possible.”
The new Home Possible Mortgage combines borrower education and early delinquency counseling, zero and three percent downpayment mortgage products and flexible credit requirements so low-and moderate-income borrowers anywhere in the country can get an affordable, low-cost conforming conventional mortgage for a single family property with as little as $500 of the downpayment or closing costs coming from their own funds. …
Home Possible and Home Possible Neighborhood Solution Mortgages are available through Freddie Mac’s national network of more than 2,000 lenders and 10,000 mortgage brokers using Loan Prospector®, Freddie Mac’s automated underwriting service, such as ABN Amro, U.S. Bank and National City Bank. …
Both Home Possible and Home Possible Neighborhood Solution Mortgages are available as 15-, 20- and 30-year fixed rate mortgages or as 7/1 or 10/1 adjustable rate mortgages for one-unit properties.
No-down mortgages and “flexible credit” helped create the spike in demand that drove the home-construction business over a cliff and hyperinflated housing values. The people who participated in these terms are the borrowers now most at risk for foreclosure because of unrealistic ARMs and dashed hopes of refinancing leveraged on non-existent equity growth. Home Possible and similar offerings from Fannie Mae allowed lenders to sell bad paper back to Freddie and Fannie with no risk to themselves, while Fannie and Freddie instead shuffled the risk to investors in its mortgage-backed securities.
Now Barack Obama wants David Stevens to do to FHA what he did with Freddie Mac. Instead of screeching about AIG bonuses, we should make sure that the people who blew up the economy in the first place do not return to positions where they can do it again. (h/t: HA reader Morgen)