Congressman Stephen F. Lynch recently introduced H.R. 264, the FHA Enhanced Oversight Act of 2013, which would increase the transparency and accountability of the Federal Housing Administration (FHA) by requiring a second annual independent analysis of its financial status. Currently, the FHA is only required to conduct one independent study per year. A second analysis, which would be required only when the FHA is experiencing financial distress, will provide Congress with additional warning signs of trouble at the FHA.
"The FHA currently guarantees more than $1 trillion in mortgages and roughly 25% of all mortgages originated in the United States. Given its enormously important role in our housing market, a bailout of the FHA would be a serious shock to the housing market and our economy as a whole," Congressman Stephen F. Lynch said. "While the FHA continues to tell Congress all is well, its fiscal health continues to deteriorate--Congress needs better information, and we need it more often."
The FHA guarantees mortgages made by private lenders to borrowers who would otherwise have trouble securing a loan in the private market. To pay claims when a mortgage defaults or goes into foreclosure, the FHA maintains a Mutual Mortgage Insurance (MMI) Fund, which Congress requires to be worth at least 2% of the total amount of loans the FHA guarantees. Each year, an independent actuary studies the MMI Fund to analyze how FHA guaranteed loans are performing and calculate whether the MMI Fund meets the 2% capital ratio requirement. Congressman Lynch's bill would require an additional annual review when the MMI Fund's capital ratio dips below the required 2% level.
The MMI Fund's capital ratio, which has been in steady decline since the housing market collapsed, has been below the statutorily mandated 2% in each Fiscal Year since 2009. In November 2012, FHA announced that the independent study showed that the capital ratio of the MMI Fund was -1.44%, meaning that the fund has a negative economic value and will need a bailout sometime during this year unless changes are made to make the Fund solvent.
Lynch introduced similar legislation in the 111th and 112th Congresses; his FHA Enhanced Oversight Act passed the House of Representatives last Congress as part of the FHA Emergency Fiscal Solvency Act of 2012, but was not taken up in the Senate.
"The FHA must continue to play an important role in expanding access to our housing market, but we cannot be blind to the danger it poses when the housing market is in turmoil. By increasing the transparency and oversight of the MMI Fund, this common sense bill would protect the American taxpayer as well as our economy," Lynch added.