Witnesses testified before the House Financial Services Subcommittee on Housing and Insurance on Wednesday, saying that the Federal Housing Administration as it currently operates needs to be reformed.
“We recognize the contributions of FHA to getting the nation through the recent crisis, given the contraction of private credit that occurred in the wake of the crisis, and support a future role for FHA that returns to a more focused mission of providing access to homeownership to creditworthy borrowers that cannot be adequately served in the conventional market with private mortgage insurance,” Adolfo Marzol, the vice chairman of Essent Guaranty, said. “Accordingly, this requires private capital to play a larger role to ensure that creditworthy borrowers continue to be well served in the U.S. mortgage market, and private capital has firmly demonstrated its willingness to invest in the U.S. MI industry. The demonstrated ability to attract capital allows firms such as ours to support the U.S. mortgage market with increasing capacity to write more, deeper and broader MI coverage.”
The House Financial Services Committee has held a number of hearings related to reform of the FHA, the single-family mortgages of which are insured by the Mutual Mortgage Insurance Fund. A report released late last year estimated that the MMI Fund had a negative economic value of $16.3 billion, leading many critics of the agency to voice concern about a potential taxpayer-funded bailout.
Randy Neugebauer, the chairman of the subcommittee on housing and insurance, proposed four principles of FHA reform during Wednesday’s hearing.
“As we embark on the legislative process, there are four principles that I believe the Committee must address,” Neugebauer said. “First, we must get FHA back on sound financial footing so taxpayers are better protected. Second, we must clearly define FHA’s mission to ensure that the Agency is narrowly focused on serving first-time homebuyers and creditworthy low-to-moderate-income borrowers. Third, we must shift risk away from the taxpayers and into the private sector by reducing FHA’s footprint and make sure the Agency is complementing the private sector, not directly competing with it. Finally, we must ensure that FHA runs its MMI Fund according to the basic tenets of insurance, including evaluating its risk according to actuarial principles and correlating premiums to actual risk.”