Newsroom

The Federal Housing Administration plays an important role in the housing market, one reason NAFCU continues to press for change in the agency's policy on strategic default, NAFCU Vice President of Legislative Affairs Brad Thaler told lawmakers Tuesday.

In a letter to House Financial Services Committee leaders ahead of a hearing today on FHA oversight, Thaler highlighted the difference between FHA's three-year lockout policy compared with the seven-year policy in place at Fannie Mae.

Briefly, FHA will not guarantee a mortgage of someone who strategically defaulted on their loan within the past three years. That's much briefer than the seven-year lockout period at Fannie Mae and lets borrowers know it's easier to get a new loan from FHA after walking away from one. The greater the defaults, the greater hit to FHA's reserves and, ultimately, taxpayers.

Thaler said strategic defaults are unfair to those homeowners whose home values may have declined but who are still honoring their mortgages. These same homeowners – credit union members, in many cases – are further harmed when others' decisions to walk away from their loans serve to drive values even lower.

"Considering the committee'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 wrote.