The House Financial Services Committee held a hearing on Tuesday in which Federal Housing Administration Commissioner Carol Galante testified on the agency’s first-ever taxpayer-funded bailout.
Galante defended the administration’s announcement that it needed $1.7 billion from the U.S. Treasury to meet a requirement mandated by the Federal Credit Reform Act, saying the draw is not a bailout but that the FHA must hold reserves against potential losses for 30 years, and it cannot count future revenue.
“This mandatory appropriation of $1.68 billion is not an indication of FHA’s cash position or its ability to pay claims on outstanding loans insured by the [Mutual Mortgage Insurance Fund],” Galante said in written testimony. “Rather, it is a function of FHA’s obligations under Federal Credit Reform to maintain sufficient reserves to pay all expected losses as measured each year at a single point in time, and therefore does not account for the effect of future endorsements. Today, FHA has over $48 billion in its financing account.”
HFSC Chairman Jeb Hensarling (R-Texas) was critical of the agency, saying it is a “high risk to taxpayers and to the mortgage insurance market.” Earlier this year, Hensarling said the FHA’s “dominance” of the U.S. housing finance system presents a “clear and present danger” to all taxpayers, adding that the FHA could become “the next Fannie Mae and Freddie Mac,” Bloomberg reports.
Galante said projections show the administration will not require a subsidy next fiscal year. The need for funds marks the first since the agency was established in 1934 and has led to calls for the FHA to be less involved in the housing finance market.
Rep. Scott Garrett (R-N.J.) said he was “angered…about forcing the American people to rescue” another government-sponsored housing enterprise. Rep. Maxine Waters (D-Calif.), however, stressed the FHA’s role in providing liquidity to the market during the financial crisis, according to Bloomberg.
The HFSC has passed the Path Act, which would limit FHA coverage to first-time borrowers purchasing moderately priced homes, and the Senate Banking Committee approved a measure in July that would set a floor on premiums the agency charges and would require the FHA to hold additional funds in reserve.
The FHA has increased premiums five times since 2009 and announced in September it would take the Treasury draw to shore up the insurance fund, which saw significant losses stemming from the financial crisis, Bloomberg reports.
Galante said the FHA has reached a “tipping point” in its mission to provide protection to homebuyers while maintaining the liquidity of its insurance fund.
“As we continue to seek a balance between strengthening the fund and ensuring access to credit we must assess whether FHA premiums are set to appropriately account for risk to the fund without making the cost of credit prohibitive for qualified homebuyers,” Galante said, according to Bloomberg.