The Role of HUD and the FHA: Conflicts in Mandate and Operations, Past and Present
Tensions exist in HUD/FHA’s dual mandate to be responsive both to homeowners’ needs and to the mortgage-lending industry. The limited data suggests that nonprofit organizations have been better at restabilizing homeowners with loan modifications.
A recurrent theme in HUD/FHA’s history is the tension in its dual mandate: to be responsive both to the needs of homeowners and, at the same time, to the mortgage-lending industry. Conflicts between the priorities of private for-profit stakeholders who do business with the FHA and the homeowners whose mortgages the agency has insured have arisen repeatedly. Typically, federal agencies have tended to be more attentive to the needs of the former than to the latter. Such conflicts occurred following the creation of the FHA in 1934 and in subsequent decades. A key problem was the failure of mortgagees to adhere to FHA servicing guidelines, combined with lax HUD/FHA oversight. In recent years, HUD/FHA’s conflict between its need and desire to be responsive to both the mortgage-lending industry and homeowners participating in its programs has been evident in the operation of HUD’s program for disposing of loans in end-stage of default (seriously nonperforming loans and heading toward foreclosure), the Distressed Asset Stabilization Program (DASP). The great majority of these loans have been sold to private for-profit investors. Only 2 percent have been sold to nonprofit organizations, whose missions are focused explicitly on homeowners and communities. The limited data that is available reveals that nonprofit organizations have a better record of restabilizing homeowners in their homes with loan modifications: while the overall percentage of restabilizations for loans sold through DASP is only 12.8 percent, the restabilization percentages for nonprofit DASP purchasers ranges from modestly (19 percent) to considerably better (40 percent).