On Thursday, October 29, 2015 I attended a meeting of a group of top executives from the Housing and Urban Development (HUD), the Federal Housing Administration (FHA) and Colorado Housing Finance Authority (CHFA). The meeting was held to discuss with local REALTORS®, mortgage lenders and community members the impact on housing prices and the lack of unwillingness of mortgage lenders to lend money on the properties in the affected area.
On December 11, 2014, the EPA added the former Colorado Smelter to the National Priorities List (NPL) of Superfund sites. Superfund is the federal program that investigates and cleans up the most complex, uncontrolled or abandoned hazardous waste sites to protect public health and the environment.
Since this area which potentially affects some 1900 homes in and around the affected area, lenders have been reluctant to lend money to potential homeowners. This has caused great harm to our marketplace and home values.
The message at Thursday’s discussion was lenders can and should be lending money to potential homeowners. However, in the question and answer section, Councilman Bob Schilling best summarized the concerns of mortgage lenders and real estate agents in the area by saying,
“Unless you give us a letter or something that indemnifies us and any lender of liability, it’s just not going to happen.”
Let me try and explain this complex situation so it makes sense.
The Federal Housing Administration (FHA) is a branch of the U.S. Department of Housing and Urban Development (HUD) which insures home loans at a low interest rate to working buyers, many of whom have less-than-desirable credit histories. When a mortgagor defaults on a loan insured by the FHA, HUD takes possession of the home through a foreclosure process.
The crux of the matter from a lenders perspective is insurance and liability. FHA will not insure a loan if the property is a ‘designated’ property. This would only be the case if a particular property has been tested by the EPA. At this point there has only been a few properties that have been tested. The long range timeline on testing is undetermined at this point.
This testing timeline was the point Scott Bice, Director of the Denver Single Family Homeownership Center (DHOC) was trying to convince the audience of. He stated that as long as a home has not been tested and identified as a ‘designated’ property, FHA would still insure the loan. To further his point that it was safe to lend on a property he assured the audience that once an FHA loan was approved, the insurance on the property could never be revoked and their would be no liability to the lender. On the surface, this declaration from the Director should have been enough to sway lenders they would not be held liable for the loan.
Nate Schultz, Home Finance Business Development Manager at CHFA told the audience that they have approved loans from lenders for homes in the Superfund area. Mr. Schulz also indicated that Fannie Mae has no guidelines that would prohibit lending in a Superfund. He did not specifically state whether Ginnie Mae had the same policy or not.
The Federal National Mortgage Association (FNMA), is commonly known as Fannie Mae is a government-sponsored enterprise (GSE) and has been a publicly traded company since 1968. The corporation’s purpose is to expand the secondary mortgage market by securitizing mortgages in the form of mortgage-backed securities (MBS) allowing lenders to reinvest their assets into more lending and in effect increasing the number of lenders in the mortgage market by reducing the reliance on locally based savings and loan associations (aka “thrifts”).
Ginnie Mae guaranty allows mortgage lenders to obtain a better price for their mortgage loans in the secondary mortgage market. The lenders can then use the proceeds to make new mortgage loans available. What Ginnie Mae does is guarantee investors the timely payment of principal and interest on mortgage backed securities (MBS) backed by federally insured or guaranteed loans — mainly loans insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA).
At the end of the day, the story to lenders and agents was, although the Smelter site is on the National Priority List for cleanup, it is essentially an area of interest and is not designated, therefore lenders should feel comfortable to lend.