Lawmakers, housing industry experts urge caution in shoring up FHA's finances
Reactions were mixed on Friday after an independent audit found that the Federal Housing Administration is facing billions in losses.
Democrats and housing industry advocates called for changes at the struggling agency, which bore the brunt of bad loans made after the housing crash and the market's subsequent recovery, but argue the problems are solvable.
Republicans were harsher in their criticism, saying that the losses reflect the need for a major overhaul at the agency as part of a reduction of the government's majority role in the mortgage finance market.
An independent audit released Friday estimated that the mortgage insurer, which has more than $1 trillion worth of loans in its portfolio, is $16.3 billion in the red because of slowly rising home prices and historically low interest rates. That figure was more than expected.
The figure raised the specter of a taxpayer bailout, which would be the first in the agency's 78-year history.
Rep. Maxine Waters (D-Calif.), who is vying for the top Democratic spot on the House Financial Services Committee, urged the Senate to consider a House-passed FHA reform bill.
"I hope that we can continue a discussion of FHA during a wider housing finance reform debate during the next Congress," she said.
She credited the FHA for stepping up during the market's severe contraction, "providing crucial liquidity and access to the mortgage market" and for improving its portfolio of the loans it backs while shedding a slew of bad mortgages made between 2007 and 2009.
But some lawmakers see a taxpayer bailout as unavoidable.
"Independent watchdogs, taxpayer advocates, and members of Congress have been warning the administration for several years that FHA's fiscal position was rapidly deteriorating," said Rep. Scott Garrett (R-N.J.), chairman of the Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises.
"Unfortunately, the administration failed to take the measures needed to prevent a bailout."
He urged the Senate to pass a bipartisan FHA solvency measure that moved through the House with overwhelmingly support in September and would give the Department of Housing and Urban Development the tools needed to fix the agency's financial issues.
"Moving forward, this wake-up call will hopefully serve as a catalyst for reforming our nation's housing finance market and significantly reducing the American taxpayers' exposure to further bailouts of the housing market."
Meanwhile, Sen. David Vitter (R-La.) called the deterioration of the agency's finances "an absolute failure of leadership by the current FHA management."
"Giving billions of dollars to bailout the FHA would not fix what's broken in the housing market, it only buries the nation further in debt," he said.
He expressed concern that the Treasury Department would step in without congressional approval to provide financial support for the agency.
To that end, Vitter introduced legislation nearly a year ago that prohibits that type of bailout.
Texas Republican Randy Neugebauer called the report "further proof that Congress needs to reform the government's role in the housing market."
Off Capitol Hill, industry officials say FHA's financial troubles are no surprise but Congress may need to take the lead in shoring up the agency's financial health.
"How FHA, and potentially policy makers in Congress, deal with the erosion will be of vital importance," said Frank Keating, head of the American Bankers Association.
"The task will not be easy, but is necessary not just to preserve FHA, but also the broader mortgage market."
But it must be done without taxpayer help.
"Achieving that goal must be done in a way that does not drive private lenders from participating in the FHA program by making the process overly bureaucratic and lacking in certainty," Keating said.
Debra Still, chairman of the Mortgage Bankers Association (MBA), said there is good news in the negative numbers because FHA has taken step to improve its balance sheet by implementing better ways to manage risk in recent years.
"The industry welcomed many of those changes and believes that policymakers can take further steps that would stabilize FHA single family programs, starting with a rigorous look at the data driving the actuarial results and an open, robust discussion over the future of the government's role in housing finance."
She said FHA plays a "critical role in the housing market."
"While there is near-unanimous agreement that FHA's role in the single family housing market today is too large, we must remember that the housing market would be far worse off, today and in the future, without FHA," she said.
Barry Rutenberg, chairman of the National Association of Home Builders (NAHB) agreed that lawmakers must tread carefully because of the agency's central role in the housing market.
"While there is no doubt that the housing finance system needs to be reformed, the contributions that the FHA has made during this economic downturn underscore the need for a government backstop for both the primary and secondary mortgage markets," he said.
"In times of crisis, private financial institutions have fled the marketplace and consistently failed to step up to the plate. Without government support for home purchasing and refinancing, the nation's mortgage markets will grind to a halt, throwing the economy back into recession."