Tipton: FHA Practices Pose Risk to Taxpayers

WASHINGTON – February 12, 2015 – (RealEstateRama) –Today, Congressman Scott Tipton (R-CO) questioned Department of Housing and Urban Development (HUD) Secretary Julian Castro during a House Committee on Financial Services oversight hearing to examine the Federal Housing Administration’s (FHA) precarious financial state.

According to a third-party actuarial report released in November 2014, the Mutual Mortgage Insurance Fund’s (MMIF) economic value was $4.8 billion, which is the sum of the FHA’s existing capital resources plus the net present value of its current books of business. However, the report calculated the FHA’s capital reserve ratio includes more than $2 billion in proceeds from recent Justice Department settlements with mortgage lenders. The report showed that the FHA’s reserve ratio was 0.41 percent, when the statutorily mandated minimum standard is 2 percent.

“The inability of HUD Secretary Castro to answer basic questions on the FHA’s portfolio today, specifically on matters related to its capital reserve ratio, is deeply concerning. The FHA’s capital reserves are well below the mandated minimum. If the economy sputters or stalls at all FHA could easily require another bailout by the taxpayer, and yet isn’t even taking basic available steps to fix the problem,” said Tipton. “In my small business, if we faced a situation where we were losing money because of our business practices, we didn’t kick back and wait to reach a crisis point. We took corrective action to get back on track and stop losing money. This simple principle, universally followed by businesses, is exactly what the FHA isn’t doing. Instead, the agency seems to be waiting for a different outcome to occur without changing its behavior—the very definition of insanity. In fact, government regulators are increasing capital requirements on private sector insurers, yet all the while FHA is engaging in the very same risky practices the administration is regulating in the private sector. This is beyond unacceptable.”

The FHA’s risky practices led to a $1.7 billion taxpayer bailout two years ago, and short of the agency taking steps to minimize losses through such actions as raising insurance premiums and increasing down payment size, taxpayers could once more be on the hook for additional bailouts.

Among FHA’s most absurd practices is that of insuring loan amounts way beyond the agency’s original purpose of serving targeted populations such as low-income families, first time buyers and communities with limited access to credit. Today, FHA insures loans as high as $625,500. Before the financial crisis, the FHA could not insure mortgages over $363,000. Tipton questioned Secretary Castro about continued attempts by the FHA to gain market share.

“Today the FHA can insure a loan for a borrower to the $625,500 limit even though in most communities across America this would be a ludicrous amount for a low-income family or first time home buyers,” said Tipton. “It’s time for a common sense fix of setting loan limits regionally so that borrowers are not getting loans approved for homes they cannot afford. However, this would run counter to the FHA’s continued attempts to grow its market share—which is already about 50 percent of the market. It shouldn’t be the FHA’s goal to continue to grow its market share, but get its fiscal house in order, and fulfill its mission of serving the underserved.”

Secretary Castro’s testimony is available HERE.

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