Neugebauer: FHA Has A ‘Credibility’ Problem

Posted by Orb Staff on February 14, 2013 No Comments
Categories : Residential Mortgage

13292_randy_neugebauer Neugebauer: FHA Has A 'Credibility' Problem The honesty and viability of the Federal Housing Administration (FHA) was called into question by Rep. Randy Neugebauer, R-Texas, chairman of the House Financial Services Committee's Subcommittee on Oversight and Investigations.

In testimony delivered yesterday during a hearing of the Financial Services Committee, Neugebauer noted the FHA's response to the negative state of capital reserve ratio in its Mutual Mortgage Insurance Fund (MMIF) as evidence that the agency does not want to acknowledge it has a problem.

‘For the past few years, we've heard testimony that their financial situation is improving,’ Neugebauer said. ‘But the facts don't support that conclusion. In fact, [the] FHA's financial condition continues to deteriorate.’

Neugebauer berated the FHA for traditionally emphasizing the positive spin when it was clear the MMIF was losing money.

‘In October 2009, Secretary [Shaun] Donovan stated that because of the quality of loans underwritten by [the] FHA, the drop below the congressionally mandated reserve ratio would be 'temporary' and would 'return above two percent within the next two to three years,'’ he continued. ‘That same month, former FHA Commissioner Dave Stevens came before this committee and stated that [the] FHA 'would not need a bailout.' Three years later, the fund has a capital ratio of negative 1.44 and we are well on our way for a taxpayer-funded bailout. The fact that FHA's public comments directly contradict the reality of its capital position has unfortunately resulted in a credibility gap with Congress and the American people.’

Neugebauer acknowledged that the FHA plays an important role in housing finance, but warned that its current activities would lead to acute problems.

‘I do want to emphasize that I'm not advocating for the elimination of [the] FHA,’ he said. ‘What I am suggesting, however, is that the agency has exceeded its historical mission, and these actions pose a threat to the American taxpayer. There is a proper place for [the] FHA – appropriately sized for the market and its historical mission – which is intended to complement rather than compete with the private sector in building a sustainable housing finance system.’

In the agency's defense, FHA Commissioner Carol Galante insisted that talk of a bailout was premature.

‘While the actuary's finding regarding the economic net worth of [the] FHA's portfolio is obviously of very serious concern, it is not the determining factor for whether [the] FHA will need to draw on permanent and indefinite budget authority from the Treasury,’ she said. ‘Any determination that such a draw is necessary will not be made until the end of fiscal year 2013 – and in any event, does not affect the full faith and credit of the federal government to pay any claims. In the intervening period, the president's budget will outline the administration's expectation of whether or not [the] FHA will need assistance by the end of the fiscal year. However, the ultimate need will be borne out in the actual performance of the FHA single-family program over the course of the fiscal year and will be impacted by the steps [the] FHA takes over the course of the year to increase revenue or reduce losses.’

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