FHA bailout adds to 'existential threat', Republican congressman claims

by Adam Smith30 Oct 2013

A Republican congressman has taken aim at the FHA bailout, saying it heaped money onto the national debt spurring an "existential threat".

Financial Services Committee Chairman Jeb Hensarling (R-TX) has told the FHA Bailout Hearing that the $1.7bn bailout of the FHA took place due to the agency "ignoring warnings about its solvency, failing to use its existing tools to price insurance appropriately, and failing to minimize losses".

"Barely a week ago the Congressional Budget Office delivered more bad news, reporting that FHA has consistently misstated its projected recovery. Specifically the CBO has said mortgages insured by FHA over the past two decades have had a net cost of $15 billion, even though initial estimates from FHA suggested $45 billion in profits. That’s a remarkable $60 billion swing in the wrong direction. Another rosy scenario dashed at an agency that regrettably has a history of such," Hensarling said.

Hensarling blamed the FHA for adding to the national debt, which he dubbed "the greatest existential threat" facing the country, and argued for the Republican-backed PATH Act.

"The PATH Act will achieve needed objectives for the FHA. It will put FHA on sound financial footing and keep it there. It clearly defines FHA's mission to ensure that the agency is serving first-time homebuyers and low-to-moderate-income borrowers. The PATH Act shifts risk away from the taxpayers and into the private sector by reducing FHA's footprint and making sure the agency is complementing the private sector, not competing with it. It ensures that FHA runs its single-family insurance fund according to the basic tenets of mortgage insurance. And finally, the PATH Act mandates the insurance of the 30-year fixed mortgage and retains FHA’s countercyclical role.," he said.

But the National Association of Realtors last week slammed the proposed plan, with NAR chief economist Lawrence Yun calling it "highly ideological rather than practical".


  • by Kent Kelso | 10/30/2013 8:52:30 AM

    Logic says run FHA like any insurance pool pricing for risk.
    Example: If a person who just graduated from collage, started their career and can make the monthly payments with reasonable 38-45% total DTI, has a 727 mid score but has no Downpayment and needs a gift from family, hence the FHA mortgage vs Conv. This borrower should be rated at 50-55 basis points annual vs the 135 now! Prudence on their part says wait or rent because the FHA MIP is TOO HIGH. If a person with similar DTI but a 620-640 mid score and less financial stability who otherwise qualifies for the program via TOTAL SCORECARD SHOULD PAY the 135 basis points and there should be tiers in between. If this is not the case you are assuring that FHA pool will be loaded with lesser performing mortgages with nothing to offset them. This make no good business sense. This is typical Business by Government mentality! It's ok, well just printore money!!!
    The program is great and necessary, just needs to be treated more like a business!

  • by Dave Mattull | 10/30/2013 10:25:44 AM

    Kent, You make entirely too much common sense for our government to understand what you just said.. You should be receiving phone calls from some of the govt officials who make these stupid rules and ask you to explain business insurance 101 to them..


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