Tags: House | Subcommittee | Future | FHA

House Subcommittee Looks at Future of FHA

By    |   Friday, 27 February 2015 06:46 AM

On February 26, the House Financial Services Committee’s Subcommittee on Housing and Insurance, chaired by Rep. Blaine Luetkemeyer, R.-Mo., held a hearing entitled “The Future of Housing in America: Oversight of the Federal Housing Administration – Part II."

Witnesses included two critics of the agency’s recent action to reduce premiums on mortgages guaranteed by FHA by 40%, a representative of the private mortgage insurance (PMI) industry that competes with FHA, and a leading supporter of federally-backed housing programs.

The purpose of the hearing was to get additional perspectives on the condition of FHA following the testimony of HUD Secretary Julian Castro on February 11.

Douglas Holtz-Eakin, President of American Action Forum and former Director of the Congressional Budget Office (CBO), criticized what he considered to be the hasty action by the administration to reduce mortgage insurance premiums at FHA by 40% on the ground that it will increase risk at FHA and delay by a year or two the time when it will achieve compliance with the 2% minimum capital requirement for the Mutual Mortgage Insurance Fund (MMIF).

He cited this as another example of the nation’s inability to address housing finance reform because it allows FHA to increase its market share when the government should be stepping back.

Prof. Clifford Rossi, of the University of Maryland Business School, also criticized FHA’s decision to reduce premiums and the methodology by which it was made. Like Holtz-Eakin, he also criticized the agency for seeking an advantage over private insurers when the government should be reducing its footprint in the mortgage market, and he called for steps to clarify the mission of the agency as serving lower-income borrowers.

Rohit Gupta, of Genworth, one of the handful of companies that make up the private mortgage insurance business, made the case that these companies are better managed and better capitalized than FHA and that compared to FHA they have learned the lessons of the 2008 crisis episode, have supplied capital to the mortgage market, and will be better situated to do that in the future.

However, when he stated that the industry paid $44 billion in claims arising from the crisis, the next witness retorted that the companies didn’t always pay the claims and not always on time.

Julia Gordon, of the Center for American Progress, the Democratic witness on the panel, made the argument for FHA as the countercyclical force that supports the housing market when the private sector heads for the sidelines as conditions turn adverse for the mortgage business.

She countered the accusation by Republicans on the full committee that FHA is violating the law by operating below the statutory minimum capital, making the nuanced point that FHA is also called by law to perform its mission of supporting the mortgage market.

A crucial point is that Gordon and other defenders of FHA assert that the current book of business will enable FHA to meet the statutory capital requirements, whereas critics charge that FHA has not taken risk of default into account but rather is losing money and trying to make it up by adding volume.

Legislators face the task of resolving the conflicting claims and building a new industry model.

(Archived video, not yet posted as of this writing; witness testimony; and the staff memorandum can be found here.)

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On February 26 the House Financial Services Committee's Subcommittee on Housing and Insurance, chaired by Rep. Blaine Luetkemeyer, R.-Mo., held a hearing entitled "The Future of Housing in America: Oversight of the Federal Housing Administration - Part II."
House, Subcommittee, Future, FHA
Friday, 27 February 2015 06:46 AM
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