Matthew Scire, Director of Financial Markets and Community Investment for the Government Accountability Office, suggested that the Rural Housing Service should merge with FHA to save money and improve service, in testimony on May 19th in a House Financial Services subcommittee hearing.
Mr. Scire referenced a report that indicated that there was a lot of overlap between the two loan programs. He also noted the disparity in staff resources between the two agencies with the Rural Housing Service (RHS) having a much larger staff that FHA despite the fact that FHA endorsed a total of $786 billion in single-family loans in FY 2014, while RHS endorsed $19 billion in loans.
It should be noted, however, that FHA was able to ensure such a high volume of loans because ALL of its loans were processed, underwritten and closed by approved mortgage lenders and 80% were actually insured by lenders (under the Lender Insurance program) – not FHA staff.
The RHS still administers a direct lending product (which is handled by RHS employees) as well as a Guaranteed Loan Program. In this regard, there have been some recent technological enhancements made for participating lenders in the Guaranteed Loan Program which enable them to begin receiving Loan Note Guarantees electronically as well as upload loan origination documents to the Agencies for processing.
Because FHA shifted responsibility for the processing, underwriting and closing of loan transactions to lenders in the 1980s (under the Direct Endorsement program), the Department successfully consolidated all of its loan origination activities from 81 Field Offices to only 4 Homeownership Centers (Philadelphia, Atlanta, Denver and Santa Ana) and a Servicing Center in Oklahoma in the mid 1990’s and significantly reduced staff accordingly. FHA staff is now primarily involved with oversight and monitoring responsibilities. The Department even “contracts-out” its Resource Center activities which handling all phone and email inquiries received from the industry.
However, there would be huge obstacles to overcome if RHS programs were merged with FHA at the present time. Some of these problems include: government rules relative to Reduction-in-Force and Transfer of Function are very difficult and time-consuming to implement, RHS current staff are primarily not located in the four urban areas where FHA’s Homeownership Centers are located, the way that RHS loan programs are administered are much more staff-intensive than the oversight responsibilities and experience that FHA staff maintains and the politics of merging loan programs designed for rural America with Housing & URBAN Development programs would result in some interesting Congressional debates.
The best plan of action, in my opinion, would be for the RHS to take similar steps to what HUD/FHA did in the 1980s and 1990s. By empowering approved lenders to take on more processing, underwriting and closing responsibilities combined with implementing more technological enhancements should help streamline their loan origination process. Once this is done, RHS could create “Processing Centers” that would consolidate loan origination activities in only a few offices. These steps would help save money and improve processing times.
Looking to the future – it would be much easier to accomplish a merger between RHS and FHA if RHS’ organizational structure and loan processing procedures were changed to become more similar to FHA’s. Also, looking “outside the box”, why not also consider taking the FHA functions outside of HUD and create a separate “Agency” that would be responsible for the administration of all Government loan programs – FHA, VA and RHS?