Castro Defends HUD’s Request For Administrative Fee

17358_shakedown Castro Defends HUD's Request For Administrative Fee Julian Castro, secretary of the U.S. Department of Housing and Urban Development (HUD), on Monday defended his department's request for an administrative fee that will be charged to lenders annually based on loan production.

Castro's remarks were made during the Mortgage Bankers Association's (MBA) annual conference and expo, held this year in San Diego.

The proposal – which is identical to one that was included in last year's federal budget request, but rejected by Congress – has raised strong objections from the MBA and the industry at large, mainly because HUD has not completely defined the fee structure or exactly how the funds will be used.

In March, Bill Cosgrove, chairman of the MBA, sent a letter to HUD saying that although the MBA ‘fully supports HUD's request for $174 million for FHA's administrative expenses,’ it has ‘serious concerns with the unprecedented step of funding FHA's administrative costs outside of the regular appropriations process by seeking the funds through a fee on lenders.’

In the letter, Cosgrove says that this fee will ‘undoubtedly be passed along to consumers, raising the cost of mortgage credit just as the housing markets are showing signs of recovery.’

Castro, however, said the fee is necessary in order for HUD to upgrade its IT infrastructure, which has been outdated for many years.

‘FHA is the largest mortgage insurer in this 21st century global economy,’ he told the crowd of mortgage professionals during the conference. ‘But when it comes to our technology, I might as well jump in the DeLorean like Marty McFly did in 'Back to the Future' because our IT is that old.

‘Sometimes it feels like we're sending faxes in an Instagram world,’ he added. ‘But in this political environment, we can't depend on the appropriations process to give us the necessary resources. This fee will give us the funds to upgrade our IT systems. We can all agree that a stronger FHA leads to a stronger housing market, which is why we're fighting for these funds to better serve you and borrowers across the nation.’

One of the major problems the MBA sees with the proposal is that the fee would be ‘perpetual’ and not necessarily directly tied to the technology costs HUD is facing.

‘More than a year after it was initially proposed, HUD has yet to provide any of the details sought by both Congress and stakeholders regarding the manner in which the fee would be structured and how the revenue will be used,’ Cosgrove wrote in the March letter. ‘The Senate Appropriations Committee, in its report language, directed HUD to submit a detailed plan for how it will allocate the funds and called on FHA to provide clear and consistent guidance to lenders so that they can better assess risk associated with the mortgages they originate. While the Department was not legally bound to do so, it is, nevertheless, unfortunate that HUD has still not provided this information.’

Cosgrove asserted that the fee ‘should be limited in size, scope and duration to cover the specific technology improvements needed.’ In other words, it should be ‘limited to the amount HUD needs to finish its system upgrades and implement the new quality assurance programs.’

He also asserted that ‘lenders should be permitted to remit the fee on a loan-by-loan basis over the course of the year, rather than as a retroactive lump sum payment based on the previous year's loan production.’

To read Castro's full speech, click here.


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