As Senate Committee Holds Hearing on FHA Fiscal Problems, Bipartisan House Bill Waits for Action

Washington, DC – December 7, 2012 – (RealEstateRama) — As the Senate Banking, Housing and Urban Affairs Committee meets today for a hearing on the fiscal challenges facing the Federal Housing Administration (FHA), bipartisan legislation approved 402-7 in the House to help the FHA meet those challenges awaits Senate action.

The bill approved by the House in September is the FHA Emergency Fiscal Solvency Act sponsored by Chairman Judy Biggert of the Financial Services Subcommittee on Insurance, Housing and Community Opportunity. The non-controversial bill (H.R. 4264) provides FHA with tools it needs to protect its single-family insurance fund from becoming insolvent.

Financial Services Committee Chairman Spencer Bachus urged the Senate to pass the bill “as quickly as possible” in a letter sent on Wednesday to Senate Banking Committee Chairman Tim Johnson.

“The deteriorating financial position of the FHA’s capital reserves has raised concerns that, like Fannie Mae and Freddie Mac, the FHA may soon expose taxpayers to significant losses. Given the dire finances at FHA, it is important that Congress act on needed reforms before the end of the year,” Bachus wrote in his letter to Johnson.

The bipartisan bill is the culmination of a series of hearings the Financial Services Committee held on the FHA during the 112th Congress. For several years, members on the Committee have expressed concerns about the financial condition of the FHA.

When HUD Secretary Shaun Donovan appeared before the Committee on Dec. 1, 2011 to discuss the fiscal health of the FHA, Committee members continued to raise alarms.

At that hearing, Bachus acknowledged that given the state of the housing market, “it is not surprising that the FHA capital reserves have suffered” and that FHA had implemented some incremental reforms. However, he also noted that the Committee had been discussing the deteriorating status of the FHA’s capital reserve ratio for years.

Rep. Stephen Lynch echoed the Chairman’s comments. “I was in on these meetings as well when we raised concerns about the capital ratio back in 2008, and we received direct assurances from FHA ‘not to worry, we have our arms around this, we are going to handle this, we are not going to go below the statutory minimum.’ Then they did,” Lynch said. “So I am just disappointed that we didn’t have the acknowledgment that we had raised up here that we saw happening that wasn’t reflected at the agency,” Lynch told Secretary Donovan.

In his testimony to the Committee that day, Secretary Donovan acknowledged challenges but said the FHA’s single-family insurance fund “will remain positive and its prospects for the future are good.”

Eleven months later, an independent actuarial report showed the FHA’s insurance fund capital ratio had fallen below zero to negative 1.44 percent. The actuarial report also noted that the insurance fund’s economic value – which is its existing capital resources plus the net present value of FHA’s current book of business – was negative $16.3 billion, a decrease of $17.49 billion from the fund’s economic value at the end of the previous fiscal yea