Financial Services Committee To Hold Hearings on FHA
By Ellen Johnson
February 5, 2013
On Wednesday, the House Financial Services Committee will hold first in a series of hearings on the Federal Housing Administration (FHA). Wednesday’s hearing will look into how the FHA plays in housing finance and the financial status of the FHA insurance fund. The FHA was created to continue the flow of housing credit to the market. By today’s standards, FHA’s initial loan requirements would be seen as quite tough, often requiring a 20% down payment and a maximum 20 year loan term. Also during this time, FHA restricted the neighborhoods and properties eligible for assistance in an attempt to minimize losses. Obviously, over time, FHA liberalized its lending policies to the detriment of its safety and soundness. In particular, since the housing market bubble burst in 2008, the FHA has been dramatically increasing its presence in the housing market. It currently insures about one third of all new mortgages. In 2006, they only insured about five percent of new mortgages.
FHA now must continue to get more people into the program to pay for the losses from the earlier books of business that are now failing. Unfortunately, it’s the taxpayer that suffers all the losses. The FHA has taken on so many mortgages when we are seeing so many foreclosures and slipping housing values, the FHA has been on the verge of bankruptcy for the last several years. Even the 2009-2010 loans that FHA has previously touted as their turning point and “good books of business” are showing signs of increasing losses. This is something we have known for a while, but something officials in the Obama Administration have ignored. In fact, if you will recall, I wrote a blog entitled The Next Big Bailout: The Federal Housing Administration, where I quoted an FHA actuarial report that “the chance that future net losses on the current, outstanding portfolio could exceed current capital resources is close to 50 percent.” However, rather than dealing with this impending bailout, Congress voted to increase the size of mortgages the FHA can guarantee, over Congressman Westmoreland’s strenuous objections.
And just as it was predicted, one year later in November of 2012, the FHA released projections that they were expecting a $16.3 billion deficit for 2012 fiscal year.
As he did in a hearing last year with officials from the Department of Housing and Urban Development (HUD), Congressman Westmoreland plans to ask those testifying on Wednesday some very pointed questions about the state of FHA and what must be done to fix it. I encourage you to tune in to the hearing to see their response. You can watch the hearing online LIVE by visiting http://financialservices.house.gov and clicking on the LIVE WEBCASTS on the left side of the page under CONNECT.
Ellen Johnson is Congressman Westmoreland’s legislative assistant for financial services issues.