On February 26, the Subcommittee on Housing and Insurance of the House Committee on Financial Services conducted a hearing concerning the financial health of the Federal Housing Administration (FHA). On February 11, HUD Secretary Julián Castro testified about the FHA’s financial status before the full committee (see Memo, 2/17) where he faced criticism regarding HUD’s move to lower annual mortgage insurance premiums.
At the subcommittee hearing, several witnesses were critical of the agency’s decision to reduce premiums, saying that it not only increased the risk that FHA would need another taxpayer bailout, but that it would also increase the government’s share of the market, thereby crowding out private capital. Douglas Holtz-Eakin of the American Action Forum testified, “[P]ulling borrowers away from private companies runs firmly against the bipartisan policy objective of limiting the government’s involvement in mortgage markets following years of unprecedented and risky government support.”
Julia Gordon of the Center for American Progress countered these claims saying that FHA is back in the black and is providing loans to first-time homebuyers and lower-wealth families who cannot access conventional mortgages in the private market. Ms. Gordon also disagreed with the claim that FHA is violating federal law by failing to maintain a capital reserve ratio of at least 2% of the loans it guarantees, testifying “[W]hen the insurance fund is undercapitalized, the HUD Secretary may ‘propose and implement any adjustments to the insurance premiums’ and must consider FHA’s capital requirements alongside other ‘operational goals,’ including ‘meeting the needs of homebuyers with low down-payments and first-time homebuyers by providing access to mortgage credit.’”
Representative Nydia Velázquez (D-NY) stated that the FHA plays an important role in supporting the preservation and development of affordable rental housing as cities across the nation face critical housing shortages. Ms. Gordon added, “We are having a genuine rental housing crisis in this country right now where, for the first time since we’ve been tracking it, more than half of all renters pay more than 30% of their gross income for rent. It’s very important that FHA and the other HUD programs that support affordable rental housing production and especially preservation of aging housing stock continue in place…or this crisis is going to become even worse.”
The hearing testimony is at http://financialservices.house.gov/calendar/eventsingle.aspx?EventID=398730
Streaming from the hearing is at http://www.ustream.tv/recorded/59286482