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Washington, DC - Congressman Barney Frank today asked FHA Commissioner Brian Montgomery to explain how he can on the one hand announce that he wishes to run the FHA on business principles, and on the other hand announce that he does not wish to be able to serve customers at the FHA whose homes cost more than $550,000. Frank noted that the Congressional Budget Office reports that the FHA makes a profit on these mortgages at the higher end, and that in no way does servicing people at the higher end have any impact on the FHA’s ability to service people at much lower rates, except to provide more revenue with which the agency can operate.
“The blatant contradiction between Commissioner Montgomery’s announcement that he will follow business principles and his rejection of legislation that would give him the ability to apply those principles shakes my confidence in his approach to his job. If he is following some ideological agenda in his desire to restrict the FHA’s role, he is entitled to do so, but he shouldn’t pretend that this is something dictated to him by “business principles.”
A copy of the letter Frank sent to Montgomery is as follows:
June 12, 2008
The Honorable Brian D. Montgomery
Federal Housing Commissioner
U.S. Department of Housing and Urban Development
451 7th Street S.W.
Washington, D.C. 20410
Dear Commissioner,
I am writing in the hopes that you can reconcile for me two recent statements by you that are very much in conflict with each other. In your recent speech, you stressed that you wish to run the FHA according to sound business principles. But you have also announced that you do not wish to be able to guarantee mortgages – including those that are indisputably credit worthy – for homes over $550,000 in value. The statement that I read that was attributed to you is that since these homes above that number do not represent a very large percentage of your business, there is no need for you to insure them.
I find it hard to think of an argument that could be more at variance with your professed dedication to sound business principles. Can you cite me other examples of enterprises run along business principles that repudiate the desire of some customers to deal with them simply because those customers are at too high an economic level? If servicing people at the level above $550,000 detracted from your ability to service others, I would share your objection to your being allowed to do the higher end, although it would hardly be based on business principles. That is, a business – which is again the way you say you want to run the FHA – would presumably be willing to sacrifice lower end customers for higher end ones if there were a greater profit in servicing the higher end customers, and a choice had to be made.
But in this case, not only does no choice have to made, according to the Congressional Budget Office, servicing people at the higher end provides increased revenue that you can then use to enhance your ability to operate.
So I repeat my request that you explain to me what sound business principle leads you to proclaim that you do not wish to be able to service people who are seeking mortgages above $550,000, despite the fact that you could do this in a way that enhances your overall mission, and in fact is profitable in this regard.
BARNEY FRANK
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