Subcommittee on Housing and Transportation

Hearing on Congressional Proposals Impacting FHA Reserves

Prepared Testimony of Mr. Jordan Clark
United Homeowners Association

9:30 p.m., Tuesday, September 12, 2000 - Dirksen 538

Mr. Chairman and members of the Committee, I am Jordan Clark, President of the United Homeowners Association (UHA), a non-profit organization representing the interests of homeowners and housing here in Washington and in the states.

Among the issues we have been actively involved in are the deregulation of the telecommunications and energy industries, disaster insurance and specific consumer problems dealing with telephone leasing, residential rates and consumer choice and transition in the market place. We have been active in numerous consumer and industry coalitions, are a charter member of the Presidentís Homeownership Partnership Program and have sat on a number of boards and panels including those dealing with FHA practices and procedures.

I very much appreciate the opportunity to testify on S.2914, the "Homeowners Rebate Act of 2000" introduced by Senators Allard and Gramm.

If memory serves me well, back in March a fax from HUD was received in my office asking for our thoughts on how the excess money in the FHA mortgage insurance funds should be spent. The White House was anxious to come up with ideas by the end of the summer and they needed input. As a proponent and defender of FHA during the rough years not so long ago, I have to say that I felt good that the discussion was now about surplus and not deficits and insolvency. What a nice problem to have.

Because of our workload at the time and limited resources we did not respond to the request. Fortunately, Senators Allard and Gramm have replied not to HUD, but on behalf of the spirit of the FHA program and the millions who utilize FHA and created the surplus, the homeowners themselves. That reply of course is S.2914, which will rebate excess funds to those who paid the excess. The Homeowners Rebate Act is an idea whose time has come and one that we support, and we hope that the majority of the Senate will follow suit.

The refund approach makes sense for two compelling reasons. First: Out of fairness, those who paid the excess should get it back, which was the case up until 1990. Second: Permitting excess funds from dedicated programs to be used for purposes outside the program sets a dangerous precedent and circumvents the normal legislative process of authorization, appropriations and most often accountability.

I know that there have been proposals to use the estimated $700 million plus excess for much needed housing programs. We are not opposed to additional funding for those programs. We are opposed to raiding the FHA insurance fund for those purposes, purposes for which it was never intended.

By our analysis, S.2914 represents a cautious approach to distribution of the excess funds and contains reasonable safeguards to insure that the fund remains in excellent condition as demonstrated in the suspension of rebates if the capital reserve ratio drops below 3%.

We do caution that the amount in reserve be firmly established and monitored by the appropriate government entities before any rebates are approved.

Not wanting my testimony to exceed the length of the bill, we all agree that the FHA program has been a rousing economic and social success enabling millions of families (1.25 million in 1999) and individuals to become homeowners who otherwise would have been denied or delayed the opportunity. The price they paid was upfront premiums. If they paid too much, let us return their hard earned money to them and look at reducing the rates if the future. In addition to past FHA policy, there is precedent for such a practice in the private sector. My own insurance company, USAA, has consistently rewarded its members with rebate checks when premiums exceeded reserves.

I want to thank Senators Allard and Gramm for their proactive legislation and all the members of the Committee for their commitment to and interest in homeownership.

I will be happy to try to answer any questions the Subcommittee has and look forward to working with you in passing the "Homeowners Rebate Act" in the near future.

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