FHA Commissioner Montgomery, No Stranger to Crisis, on Navigating Borrowers Through the Pandemic

With unprecedented challenges facing the housing industry, it is somewhat of a relief that the Federal Housing Administration is led by someone with experience in navigating crises.

Brian Montgomery, Assistant Secretary for Housing and Federal Housing Commissioner, is no stranger to crises. He was serving in the White House and traveling with President George Bush on September 11, 2001 and dealt with the aftermath of that tragedy. In February 2003, Montgomery was the White House point of contact for the Shuttle Columbia disaster. And then again in 2007, he was housing commissioner during the collapse of the housing market, and the Great Recession that followed.

“It’s something you typically only see in a Hollywood movie, yet here we are living it,” Montgomery said in an exclusive telephone interview with Mortgage Media’s SA Ibrahim on Wednesday about the COVID-19 National Emergency. “So I guess the good news is, it seems like I’ve seen just about every calamity so far. I’m going to knock on wood after this interview ends. And in some way, I think it’s helped prepare me for what we’re doing today.”

Montgomery has reprised his role as FHA Commissioner, and Assistant Secretary for Housing, but is also performing duties of the HUD Deputy Secretary, which he says “is also very much like being the chief administrative officer. A lot of that includes disaster recovery, the CIO office and mostly the administrative backbone functions here at HUD.”

Montgomery and Ibrahim covered much ground during their conversation. Listen to the recording of the interview at the bottom of this article. Instead of running a full Q&A, we’ve lightly edited the interview for length.

 

What actions has the FHA taken to help lenders to continue to originate loans in light of COVID-19?

Montgomery: The good news is we continue to provide endorsements of both FHA Title 1 and Title 2, including obviously reverse mortgages. This has sort of been a rewinding of the clock. We recall during the Great Recession, FHA continued to function, pumping over a five-year period, more than $1.5 trillion of mortgage liquidity into the market when we really needed it. So again, putting an exclamation point on FHA’s counter-cyclical role.

This crisis, of course, is something altogether different. Grounded in a global pandemic …

So we’ve had to adapt, just as our partners out on the field have had to. We’re all working remotely. We’ve had to modify our technology, and we’ve also been able to bring online some of the technology that Congress was good enough to give us some funding for, that just very coincidentally started coming online, as a lot of the pandemic was taking hold.

Recognizing that we’re all working remotely, we haven’t had the ability to do a lot of face-to-face interaction, or quite frankly, even appraisals. We’ve done some alternatives to the normal verification of employment requirements. And on the issue of appraisals, recognizing that a lot of appraisers are not permitted interior access, we’re allowing exterior desktop-only inspections for most of our purchase transactions. We’re also allowing lenders to electronically submit their condo project approval applications.

But getting back to the IT for a minute … luckily a lot of that was coming online as this was taking hold. So we’ve now moved to what we call, FHA Catalyst … it’s a single cloud-based platform that allows us to move more to a data-centric architecture. And just recently on the masthead FHA Catalyst, we rolled out the new case binder electronic loan origination documents submission module, and we also brought onto the FHA Catalyst system, our claims module, which allows us to do supplemental claims electronically. So the good news is, we continue to function. Remember a lot of this was taking hold as a refinance boom was taking hold. We’re trying to make sure that we’re helping borrowers who need some help, but also trying to make sure that borrowers who were seeking a refinance or purchase, were able to close those as well.

 

We are hearing concern about liquidity on the part of lenders; concern on the part of lenders about borrowers’ ability to pay and therefore impact on future defaults; concerns regarding home buyers, confidence being down, and therefore their willingness to buy homes even though they’re going to probably be more affordable now; and concern from the servicers about their defaults and borrower support expenses climbing during this time. So what more is the FHA doing, or willing to do, beyond the current CARES Act?

Montgomery: FHA was busy before the CARES Act was implemented. And we’re certainly going to be busy implementing the requirements of the Act, and on some other fronts. The challenges today are facing all market participants. All lenders, servicers, stakeholders, the GSEs, VA, USDA, FHA. So it’s not just us, although we’re a large part of the market. As you know, we have about eight-and-a-half million active loans today. About 300,000 of those are reverse mortgages. We continue to be a robust part of the mortgage market.

But relative to the CARES Act, just prior to that, we implemented a foreclosure moratorium. This is something we normally do when there’s been a large natural disaster, the size of which we can obviously look at the counties under a Presidential disaster declaration. We can immediately size up the potential hit to FHA, if you will. Obviously, as we learned with this pandemic, we had a national emergency that was then later followed by disaster declarations from the Administration, now that have gone I believe to all 50 States, and a handful of cities on their own.

So the eviction and foreclosure moratorium we put into place, then the CARES Act put into place. Two six-month periods or forbearance. Now, the key thing here is it should be accessed by those who are experiencing some hardship as a result of – maybe they’ve lost their job temporarily, or maybe a change in just the family status. Maybe one of the other spouses have lost their job. So again, we want to make sure that we can give families some breathing room. They could hit the pause button if they need to and not have to worry about having a roof over their head during this pandemic.

Something Secretary Carson and the President say frequently, is that we want to make sure no one loses the roof over their head as a result of this pandemic. So we continue to talk with Congress, with the White House, we have calls with other stakeholders daily, and we want to make sure that we’re doing what we can to get help to the borrowers that need it.

 

Keeping borrowers in their home is not only important for the borrowers, but as you know, for the whole lending system. Brian, you’re very familiar with the industry receiving Ginnie’s Last Resort facility very well. What we’re hearing, though, is – are there any specific qualifications for the servicer, or all Ginnie services eligible for the program?

Ginnie Mae and FHA have a pretty robust toolkit that we can deploy in times of national economic crises like the Great Recession or in natural disasters. As I mentioned, this one obviously is something altogether different.

FHA has a fairly robust level of reserves right now, as does Ginnie Mae. As we saw, just in the last few weeks, the FHA lending world is dominated mostly by independent non-bank lenders who don’t typically have the capital obviously of depositories. That said, many of them – through no fault of their own because of the pandemic – were facing the possibility of liquidity challenges.

And the Ginnie Mae team led by Seth Appleton, working with us, but Ginnie Mae and Michael Drayne and others, Eric Blankenstein, worked very hard to get this program, which has been used very limited, and modify it again – just as we’ve had to do with some on our traditional loss mitigation programs – and literally get this stood up in a matter of a couple of weeks. It’s known as the Pass-Through Assistance Program. It’ll be available to help provide as a last resort if you will.

We’ve talked to warehouse lenders. They’re tightening the belt a little. But some are still making advances available. So we just want to make sure, just speaking for FHA and Ginnie Mae, which obviously includes USDA and VA, that we wanted to be able to deploy some of the capital that we had again as a last resort to help provide some liquidity if it is needed. We’re expected for people that draw down some funds through the program. Typically the repayment is on the order of around seven months. The program will have some pre-identified termination date, although we could extend it if needed.

 

The other thing we are hearing about is about the Pass-Through Assistance Program, which is typically used for natural disasters. In this case we’re dealing with a pandemic. How long is this coronavirus program going to run for? Is there any limit to it?

Of course that’s the big unknown … how deep, how wide and how long will this pandemic go on. And the ripple effect, we’re all very familiar with. While we run a lot of scenarios, looking at all different scenarios relative to how long and how deep and wide this goes, we obviously are hopeful that it ends sooner rather than later.

Because if we say one warehouse line provider puts on more and more overlays or worse, withdraws from that market, then obviously that could have a profound ripple effect through the market. So again, we wanted to stand up a liquidity facility to make sure we can fill that void if we have to. And again, we’re just speaking to Ginnie Mae and their partners right now and nothing beyond that.

We deployed it last Friday. We’ve already had three servicers make requests. I would say that these are the de minimus amounts so far, but we’re following it closely and going to make sure we’ve got the capital we need to deploy. The key thing here is FHA and Ginnie Mae work very closely together.

FHA has our reserves, which we could deploy later as these borrowers come out of forbearance. Hopefully because (when) this crisis is over, they’re able to resume their jobs that we can then take those arrearages and put them as a subordinate-lien, as a soft second 0% interest loan, not due and payable until the borrower refinances or sells. And we can use some of our capital to deploy for that. Then we would of course get reimbursed later when the borrower moves or refinances. So again, between the two of us, we want to make sure that we’re doing our part, but we also want to make sure though that the other stakeholders in the industry are doing what they need to be doing as well.

 

There’s a concern that because the requests are being considered under the honor system, what can single-family servicers do to ensure that borrowers that really need the forbearance get it?

The mortgage market is a bit of an ecosystem where everybody needs to do their part. Lenders, servicers, stakeholders, borrowers …

But from time to time, there are events. Some of them manmade, some of them – as we’re seeing now – a natural disaster that can upset that balance. And this is why we have things like forbearance. This is why we have things like standalone partial claims.

In this instance, Congress moved quickly, which was good. They wanted to help. There are a lot of people concerned out there – still are. They wanted to move quickly to do a lot of things, including putting some money in some families’ hands, and making sure they can meet their obligations.

But one thing that is a little open, you’re exactly right, is what are the criteria for the forbearance? It is a bit of an honor system, but we’re hopeful that … it’s designed for people who need the help because their job has been interrupted. Their income has been interrupted. It’s not a holiday, if you will.

So, there’ve been some discussions … the Hill has signaled whether there needs to be some cleanup language and a subsequent bill regarding, some criteria that we can gauge borrowers’ situations. We’ll see where that goes here in the days ahead.

But again, the key thing is, we just want to make sure that families can stay in their homes, that they can get relief here for the time being, as we continue to adjust, during this difficult and certainly unique situation.

 

Pivoting to a personal question … What was it like to get back into the government again, and what’s different this time around?

I was adding it up the other day and I think in my service to four presidents now is almost 13 years. And during that time, I’ve been part of Administrations that have dealt with September the 11th and the aftermath of that, when I was serving at the White House under President Bush. And as you know was traveling with him on September the 11th and then dealing with the aftermath of that.

And then later on when I switched positions in the White House, I was the White House point of contact for the Shuttle Columbia disaster. That was in February of ’03. And then of course, you know SA, the collapse of the housing market in ’07. And the Great Recession that followed. You know FHA had no role in the collapse of the market, but we had a huge role between the end of the Bush Administration and the beginning of the Obama Administration with my successor David Stevens, and helping get the mortgage market back on its feet, FHA had a huge role in that.

So here we find ourselves again, history repeating itself in a scenario that very few of us know. It’s something you typically only see in a Hollywood movie. Yet here we are living it.

I guess on the good news, it seems like I’ve seen just about every calamity so far. I’m going to knock on wood after this interview ends. And in some way, I think it’s helped prepare me for what we’re doing today.

There are some similarities in what FHA and Ginnie Mae are doing now as they did in ’08 and ’09, but the circumstances are altogether different. That crisis was built under a shaky housing market. Thankfully here we had a very strong economy. We had a very strong housing market, which hopefully can soften the blow somewhat.

But like all crises and all calamities, this one too shall end. And we’re all hopeful that that’s sooner rather than later.

But the Administration, working with governors and certainly for our part, working with all our stakeholders.

We speak to FHFA every day and we speak to CFPB three times a week, and directors Calabria and Kraninger and I have a weekly call for 30, 45 minutes every Monday to compare notes.

I think all of us working closely together, once we’re able to get on the other side of this crisis, we’ll be ready to go. And again, Joe Gormley and his team in single-family housing have done a tremendous job cranking out Mortgagee Letters.

I don’t like to say we’re cutting corners, but we’re definitely blunting the edges of some of our normal processes. It’s been a trying time, and our staff has worked heroically to get a lot of these mortgagee letters out. We appreciate the feedback and input we’ve been getting from the industry. They’ve been working very hard. And I think once all this is behind us, we can continue that collaboration going forward. Hopefully with probably another refinance boom.

 

Is there anything else you want to add to our discussion before we end?

I didn’t talk about the rental market and the FHA multifamily programs that are subsidized and the work we do in communities across America with our Community Development Block Grant and the great work we do in our Public and Indian Housing office. All of HUD is focused – laser focused – on getting help out there, regardless of which population, including the homeless. While I’m speaking to just FHA, I want your listeners to know that every segment of the market that we serve is getting an equal amount of focus and attention.