FHA the New Countrywide? House Committee Weighs Next Steps

Members of the House Financial Services Committee debated Wednesday what to do about the Federal Housing Administration following an audit of the agency’s insurance fund that indicates it is more than $16 billion short of being able to pay off its outstanding insurance claims.

“This is not your father’s FHA,” said Chairman Jeb Hensarling. “The single family insurance fund is flat broke. It has a negative—I repeat, negative—economic value of $16.3 billion.”

FHA has recently announced changes to shore up that insurance fund including placing a moratorium on its standard fixed rate reverse mortgage product, slated to go into effect April 1. Additionally, FHA has announced an increase in premiums for its forward loans as well as heightened underwriting for certain loans.

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Yet still, FHA faces the risk of becoming the next Fannie Mae and Freddie Mac, House committee members argued, noting the two mortgage finance companies that have already received a taxpayer bailout of almost $200 billion and now fall under government conservatorship.

Having represented 10% of the mortgage insurance market in the past, FHA today controls 56% of the total market in terms of loan volumes, which Hensarling suggests is making the agency “too big to fail.”

“If the FHA were a private financial institution, likely somebody would be fired, somebody would be fined, or the institution would find itself in receivership,” said Hensarling. “Instead, it is merely, and merrily, on its way to becoming the recipient of the next great taxpayer bailout.”

Various committee members pointed to the problems of FHA of straying from its original mission of providing assistance to low- and moderate-income Americans, as the agency’s current loan limits have provided mortgage insurance for homes valued as high as $729,000.

Possible solutions presented by housing experts include reducing seller concessions and identifying the difference between a risky loan and a risky borrower.

“FHA should crack down on lenders who don’t follow the rules,” said Julia Gordon, director for housing finance for the Center for American Progress.

Drawing comparisons to Countrywide Financial because of its loan down payments, low credit score policies and high default rates, Hensarling said he believes FHA has arguably become the nation’s largest subprime lender.

“…It is an open question whether FHA has now morphed into Countrywide,” said Hensarling. “Arguably, the FHA has now become the nation’s largest subprime lender—all with the blessing of the Administration.

Written by Jason Oliva

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  • The FHA exists to offer a hand up to the American citizen who needs the stability of homeownership or the financial security to be able to remain in his or her own home during the golden years. It is still our fathers FHA, it is going through some tough times. So, what is the right thing to do? Do we make it much more difficult to obtain an FHA loan, thereby denying those in need? The fact that FHA is involved in such a high percentage of the housing finance market reflects the shipwreck that is the non FHA market…the one that these folks would like us to be more reliant upon.
    There is a new slogan in the news which states that the American people deserve a budget. That slogan is a little off the mark. The American people deserve to be served by the budget they pay for. Gutting the benefits of the FHA, one of the most important benefit conduits to the average citizen, is not what we deserve.

    • You speak with clarity which is always good whether we disagree or not. However, if programs of the FHA are not paying for themselves then those programs are not the FHA programs of “our fathers” and they desperately need reform or termination.

      To advocate the continuation of programs which lack the ability to be self sustaining is to advocate the fiscally irresponsible.

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