The Federal Housing Administration (FHA), as it operates today, is an impediment to a sustainable housing finance system and must be reformed, witnesses told the House Financial Services Housing and Insurance Subcommittee today.
The Financial Services Committee is holding a series of hearings on the need for FHA reform. Three previous hearings held at the full committee and subcommittee levels reviewed FHA's insolvency, historical mission, and barriers created by FHA which currently crowd out the private sector from the mortgage finance system. Today's session was the latest in a series of hearings to gather information from stakeholders and outside experts on what FHA reform should include.
Housing and Insurance Subcommittee Chairman Randy Neugebauer (R-TX) put forth four principles of FHA reform at the hearing.
"As we embark on the legislative process, there are four principles that I believe the Committee must address. First, we must get FHA back on sound financial footing so taxpayers are better protected. Second, we must clearly define FHA's mission to ensure that the Agency is narrowly focused on serving first-time homebuyers and creditworthy low-to-moderate-income borrowers. Third, we must shift risk away from the taxpayers and into the private sector by reducing FHA's footprint and make sure the Agency is complementing the private sector, not directly competing with it. Finally, we must ensure that FHA runs its MMI Fund according to the basic tenets of insurance, including evaluating its risk according to actuarial principles and correlating premiums to actual risk," Neugebauer said.
The MMI Fund, or Mutual Mortgage Insurance Fund, is the government fund that insures the FHA's single-family mortgages. An independent actuarial report released last November found that the economic value of the fund was negative $16.3 billion.
Adolfo Marzol, Vice Chairman of Essent Guaranty, Inc., testified in support of reform that returns FHA to its originally intended, limited role in the marketplace. That, in turn, will allow the private mortgage insurance market to expand.
"We recognize the contributions of FHA to getting the nation through the recent crisis, given the contraction of private credit that occurred in the wake of the crisis, and support a future role for FHA that returns to a more focused mission of providing access to homeownership to creditworthy borrowers that cannot be adequately served in the conventional market with private mortgage insurance (MI). Accordingly, this requires private capital to play a larger role to ensure that creditworthy borrowers continue to be well served in the U.S. mortgage market, and private capital has firmly demonstrated its willingness to invest in the U.S. MI industry. The demonstrated ability to attract capital allows firms such as ours to support the U.S. mortgage market with increasing capacity to write more, deeper and broader MI coverage."
"Reform of the housing finance system, including FHA, should move forward, guided by shared objectives which should include reducing taxpayer credit risk and expanding the role of private capital, while preserving access to homeownership for creditworthy borrowers," Marzol added.