Waters Defends FHA Solvency
Congresswoman Maxine Waters, Ranking Member of the House Financial Services Committee, delivered the following opening statement at today's full Committee hearing on the Federal Housing Administration’s reserves shortfall:
As prepared for delivery:
Thank you, Mr. Chairman.
Commissioner Galante, I am very pleased you have appeared before this committee today.
I would like to applaud your work in managing the Federal Housing Administration, which has provided an affordable pathway to homeownership for hundreds of thousands of first time and low-income Americans.
During the worst of the 2008 crisis, when the private sector virtually left the market, the Federal Housing Administration stepped up and provided the liquidity that kept our struggling housing market afloat. This is the countercyclical role of FHA, as it has been throughout the course of its nearly 80-year history.
Despite corrective action taken in recent years, the severity of the financial crisis weakened the health of FHA’s Mutual Mortgage Insurance Fund. Recently, FHA announced a number of changes designed to shore up its finances.
Since that time, FHA has raised premiums on multiple occasions, strengthened down payment and credit requirements, enhanced underwriting and increased enforcement measures. In addition, FHA recently issued a mortgagee letter for the Home Equity Conversion Mortgage program, to help stabilize a segment of FHA’s business which has accounted for the majority of FHA’s losses.
As a result of these reforms, FHA’s last two books for business – 2011 through 2012 – have been the strongest in the Administration’s history. Moreover, the 2013 book of business is estimated to continue that trend.
But nevertheless, on September 30, 2013, FHA was required to take a mandatory appropriation of approximately $1.7 billion.
Although this one-time transfer of funds from the Treasury is legally necessary, it’s important to note that FHA is far from bankrupt.
In fact, the FHA holds over $48 billion in cash on hand. And the agency continues to generate revenue.
This mandatory appropriation is only required because FHA is bound by law to hold the revenue necessary to pay any potential claims over the next 30 years, without taking into account future business.
Moreover, the calculation used to determine whether a mandatory appropriation is required is completely outdated -- based on assumptions about loan performance and recoveries made in December 2012.
The number does not incorporate recent performance improvements or current economic factors.
These significant changes are all likely to have improved the underlying financial health of the Mutual Mortgage Insurance Fund.
For instance, expectations of home price appreciation have improved significantly. And in conjunction with rising home prices, FHA policy changes have boosted recoveries on foreclosures.
HUD has implemented measures, including a 10 basis point guarantee-fee hike earlier this year and more aggressive pursuit of put backs on delinquent loans, to shore up the Mutual Mortgage Insurance Fund.
Higher interest rates are likely to reflect positively on the Fund, as existing borrowers prepay more slowly and pay mortgage insurance premium payments for longer periods.
As a result, this accounting transfer does not reflect an up-to-date view of the Mutual Mortgage Insurance Fund’s performance, its long-term fiscal health, or its current cash position.
Since 2010, I have joined the Obama Administration in pushing for comprehensive FHA solvency legislation that would have achieved just that. Unfortunately, obstruction by Senate Republicans prevented any progress. Now, House Republicans are focused on the PATH Act, which does not address FHA solvency. Instead, it guts the program and severely restricts the ability of FHA to provide affordable access to credit.
Above all, we must strive to have a healthy, viable FHA that can continue to facilitate homeownership for first-time and low-income homebuyers, while standing ready in the unfortunate event of another housing downturn.
Commissioner Galante, I look forward to your testimony this morning. I yield the balance of my time.