Newsroom

February 28, 2012

Sherman asks why Fannie, FHA lockouts differ

Feb. 28, 2012 [UPDATED] – Federal Housing Administration Commissioner Carol Galante, answering a question from Rep. Brad Sherman, D-Calif., said there should be a conversation about bringing more consistency to policies at the FHA and Fannie Mae regarding lockouts of those who strategically default on their mortgage loans.

Galante was among the housing finance representatives who testified today before the House Financial Services Subcommittee on Insurance, Housing, and Community Opportunity. Brad Thaler, NAFCU's vice president of legislative affairs, urged the panel on Monday to examine FHA's policies on strategic defaults in order to ensure those policies address increasing numbers of strategic defaults.

During the hearing, Sherman asked Galante if the FHA treats all defaulters the same, including those who have the means but choose instead to walk away from their obligations. He then asked why the FHA lockout period for borrowers who strategically default is three years when Fannie Mae's is seven. Galante said she doesn't believe all defaults are strategic, but she said bringing consistency to the policies should be discussed.

In his letter Monday to the subcommittee, Thaler said the FHA's policy fails to provide adequate disincentives to prevent borrowers from walking away from their mortgages. "Considering the subcommittee's concerns about the solvency of the FHA, ensuring the FHA is not propped up as a safe haven for those who strategically defaulted on previous mortgages is a critical part of the safety and soundness conversation," Thaler told the panel.

NAFCU also raised the issue of strategic defaults directly with the FHA earlier this month in a formal request to the agency and HUD that they implement policies as soon as possible to discourage strategic defaults.