delegated processors. The agency's goal was to have at least two delegated processors serving each field office.

HUD's delegated processing program works as follows: Upon receipt of an application for mortgage insurance, the HUD field office involved will decide whether to process the application in-house or to employ the services of a delegated processor. If the decision calls for a delegated processor, HUD will solicit quotes from FHA-approved mortgagees that applied, were selected, and opened contracts with HUD to become delegated processors for that particular field office or region. The firm submitting the lowest fixed price will be awarded the contract. The processor is paid by HUD after each stage of processing. Processors must adhere to time frames and can only move from one stage of processing to the next after HUD review and approval.

One of the major flaws in the DPP is that the originating mortgagee cannot be the delegated processor. Mortgagees object to the HUD restriction because they do not want to turn their clients over to competitors for processing. Furthermore, originating mortgagees have no say in the decision by HUD to contract-out for processing services. Only thirteen FHA-approved mortgagees have been selected as processors. Four regions (out of ten) have only one delegated processor. The idea behind the DPP was to relieve the workload in HUD field offices. However, many in the industry have been unenthusiastic about the DPP because they see no advantages to becoming a delegated processor. The primary problems in the DPP consist of doubts as to whether a delegated processor can make enough money doing the work (considering the workload involved in processing HUD loan applications), annoying delays due to the staged approval process, and the stipulation that delegated processors cannot process their own loans. Under the current system, it can take up to two years in HUD field offices to obtain insurance approval for a multifamily project.

HUD has recently acknowledged the failure of delegated processing in its current form. It hopes to change the program to include a larger number of delegated processors. The industry awaits the newest HUD effort to create a multifamily program that provides adequate multifamily financing in a timely fashion.

The NATIONAL ASSOCIATION OF REALTORS® recognizes the need to produce affordable rental housing and to preserve the current rental housing stock. The effective withdrawal of FHA from the multifamily market has impaired the nation's supply of affordable multifamily housing stock. NAR believes that it is an appropriate role of government, through FHA, to insure that its citizens get on the first rung of the housing ladder through the support of well-designed multifamily housing finance programs. NAR urges the federal government to meet this demand by removing disincentives to financing, production and improvement of rental housing for citizens of all income levels.

Conclusion

In summary, Mr. Chairman, and Members of the Subcommittee, there is a vital need in our Nation, states and communities for economically vibrant, financially sound FHA programs in order to promote homeownership and rental opportunities. Thank you for this opportunity to present our views on these important issues.

Source:

Monthly Existing Home Sales Series; Research Division, NATIONAL ASSOCIATION OF
REALTORS®.

TABLE II

Households Unable to Obtain an
FHA Mortgage Because of Loan Limits:

By Metropolitan Statistical Area (MSA)

This table represents households living in each MSA that cannot qualify for a conventional mortgage, but can qualify for an FHA mortgage because of the less restrictive underwriting guidelines of FHA. The numbers in column 2 entitled "Locked-Out Households", are the number of such households in the corresponding MSA that qualify for an FHA mortgage that exceeds the MSA's FHA loan limit. The numbers in column 3, entitled "Locked-Out Potential Homeowners", are the number of such families in each MSA that would like to and can afford to own a home but are unable to obtain the FHA mortgage they qualify for because of loan limits. The numbers in column 3 are two-thirds of those in column 2, reflecting that two-thirds of all households are homeowners.

The data source for these estimates is the Survey of Income and Program Participation, U.S. Department of Commerce, Bureau of the Census; Analysis completed by NATIONAL ASSOCIATION OF REALTORS®.