Congress Watchdog GAO Says FHA Has Reached “High Risk” Status

Congress “watchdog,” the independent Government Accountability Office (GAO), this week released a report stating the Federal Housing Administration is a “high risk” entity.

GAO, which investigates how the federal government spends taxpayer dollars has highlighted FHA as a problem area as a result of its current financial position, following the housing crisis that is just now beginning to subside.

“Further actions could be taken to help restore the Federal Housing Administration’s financial soundness,” GAO writes in the report. Additionally, it points to the impact of the crisis that has led to FHA’s high risk state.

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“A new challenge for the markets has also evolved as the decline in private sector participation in housing finance that began with the 2007-2009 financial crisis has resulted in much greater activity by the FHA, whose single-family loan insurance portfolio has grown from about $300 billion in 2007 to more than $1.1 trillion in 2012,” GAO writes. “Although required to maintain capital reserves equal to at least 2 percent of its portfolio, FHA’s capital reserves have fallen below this level, due partly to increases in projected defaults on the loans it has insured.”

FHA has come under particular scrutiny of House Republicans lately, having been the subject of two February hearings on its financial state and next steps to help shore up FHA’s insurance fund and still provide the service it was designed to achieve. Led by Chairman Jeb Hensarling, the House Financial Services Committee questioned FHA Commissioner Carol Galante this week, seeking answers as to FHA’s course of action going forward.

Chairman Hensarling responded to GAO’s report pointing further to the risks currently posed by FHA.

“This reinforces everything our committee has been saying about the FHA for some time now – it is a high risk to taxpayers, it is a high risk to the mortgage insurance market and it represents a high risk to our economy,” Hensarling said.

“We know the FHA is broke and is quickly approaching bailout-broke. So, while it is troubling, it is not surprising that GAO would add FHA to their high risk list.”

View the GAO report.

Written by Elizabeth Ecker

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