Hensarling to HUD chief: You are in violation of the law

by MPA11 Feb 2015
Things got a little heated Wednesday morning when U.S. Department of Housing and Urban Development (HUD) Secretary Julian Castro testified before the U.S. House of Representatives Financial Services Committee.

Castro defended the Federal Housing Administration (FHA)’s decision to lower mortgage insurance premiums and predicted that the agency's Mutual Mortgage Insurance Fund would exceed the required 2% ratio within two years.

Castro added that he believes the FHA is in a strong position to lower its mortgage insurance premium from 1.35% to 0.85%.

However, committee members weren’t entirely convinced. Republican Representative Jeb Hensarling, chairman of the committee, said during the hearing,  "We've had this whispered into our ear before it hasn't proven true, and again you are in violation of the law that is there to protect taxpayers and homeowners and that has got to stop.”

Castro said in his testimony that the FHA has "strengthened underwriting standards, overhauled our loss mitigation process, and increased insurance premiums five times since 2010. The result of these actions is a $21 billion improvement to the value of the Mutual Mortgage Insurance Fund in just two years.”

U.S. Rep. Maxine Waters, D-Calif. was one of the few members to praise Castro. “Secretary Castro, although today you will likely take a fair amount of criticism from my colleagues on the other side of the aisle for your decision, I’d like to take a moment to remind them that when the private sector virtually left our struggling housing market during the worst of the crisis, the FHA stepped up and provided the liquidity that kept it afloat. Despite the steps toward recovery the economy has taken since then, the housing sector continues to suffer from a tight lending environment – and a strong FHA is still very necessary.”

Republicans have previously said premium cuts should be off the table because the agency’s insurance fund remains below the legally required level of 2%. House Financial Services Committee Chairman Jeb Hensarling said in December that “a broke FHA is a broken FHA.”

The FHA is required to keep enough cash to cover all projected losses in its $1.1 trillion portfolio. A recent report released by the agency estimated that the insurance fund won’t return to the congressionally mandated 2% threshold until 2016.

After the housing bust, the FHA's finances took a hit and in 2013, the agency was forced to draw on $1.7 billion in taxpayer funds for the first time in its history. Since then, FHA has returned in the black, in part because of the higher premiums.
Click here to read Castro's complete written testimony.


  • by Mortgage Man | 2/11/2015 2:24:47 PM

    How is the fund to recover if they only get adversly selected for mortgages that Fannie Mae will not take. Represenative Hensarling is out of touch on this issue. FHA has greatly reduced its exposure and should still remain profitable. Had it not been for the reverse mortgages being insured by HUD the fund would be beyond the 2% level. Maxine Waters has it correct about FHA being consistant when the private market got greedy and that is why FHA was still there in the end after a massive decline in home values.

  • by John Easterbrook, MLO | 2/11/2015 2:28:06 PM

    Maxine Waters is right on about FHA keeping our real estate market liquid during the financial crisis. They are a necessary and valuable asset to our economy.

  • by Mark | 2/11/2015 2:30:03 PM

    If the Washington bureaucrats would leave the fund alone and not use it for other types of spending it wouldn't be on the edge of having a short fall. I have noticed first hand how much money people are saving this go around with the reduced monthly MI. Over the years, on many potential refi's, I have told people they wouldn't have any positive decrease in there payment if they did a streamline with a lower rate because of the systematic increases to the monthly MI factor. The P&I would be lower but the over all payment with MI included would be the same or in some cases higher. There are millions of qualified fha borrowers that couldn't take advantage of lower rates because of this. I never thought I would be on the side of Maxine Watters but she is right for once on this one. I had a conversation today with my borrower and when she knew what the savings were, she said they were going to pay off their Christmas debt they extended on credit cards. Stop the wars, entitlements, over spending and help out the fha borrower that have a good track record to streamline.


Should CFPB have more supervision over credit agencies?