The Government Accountability Office recently added the Federal Housing Administration to its list of “high risk” government programs deemed so because of their greater vulnerability to abuse, mismanagement, fraud and waste.
“Although required to maintain capital reserves equal to at least two percent of its portfolio, FHA’s capital reserves have fallen below this level, due partly to increase in projected defaults on the loans it has insured,” the GAO said in its report. “As a result, we are modifying this high-risk area to include FHA and acknowledge the need for actions beyond those already taken to help restore FHA’s financial soundness and define its future role.”
A report released by the Department of Housing and Urban Development last year revealed that the FHA’s single-family insurance fund, which insures more than $1 trillion in home mortgages, has a negative economic value of $16.3 billion.
House Financial Services Committee Chairman Jeb Hensarling, an outspoken critic of the FHA, said that the GAO’s decision “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.”
“We know the FHA is broke and is quickly approaching bailout-broke,” Hensarling said. “So, while it is troubling, it is not surprising that GAO would add FHA to their high risk list. For Americans to have a healthy economy, we must put the nation on a sustainable fiscal path. And to have a sustainable fiscal path, we must also have a sustainable housing finance system. Today’s announcement from GAO underlines my grave fears that FHA, as it is operating today, is an impediment to both.”