Chairman Hensarling: "Open Question Whether FHA Has Now Morphed into Countrywide. Arguably, the FHA Has Now Become the Nation's Largest Subprime Lender"
Feb 6 -
WASHINGTON – House Financial Services Committee Chairman Jeb Hensarling (R-TX) delivered the following opening statement at today’s hearing on the proper role of the Federal Housing Administration (FHA) in the nation's mortgage insurance market. Today's hearing is the first in a series of hearings the committee plans on the FHA.
"Last week many of us awoke to news that we had negative economic growth in the last quarter. Although one quarter a trend does not make, it was not welcome news; it was not expected news.
"Unfortunately what has become expected news is subpar 1 ½ - 2% economic growth; when historic trends are above 3% and clearly the economy is capable of 4% or greater.
"2% economic growth means that millions of Americans lay awake at night pondering insecure financial futures for themselves and their families.
"Hardworking Americans demand a healthy economy and we cannot have a healthy economy until we have a housing finance system that is both sustainable and competitive.
"In its current form FHA is clearly an impediment to such a system.
"Because of this, the Financial Services Committee today is holding its first in a series of hearings to examine the FHA, now the largest mortgage insurance company in the United States.
"Historically, FHA has represented roughly 10% of the mortgage insurance market and has fulfilled its role of being the provider of mortgage credit for certain discreet populations – particularly first-time homebuyers and low- and moderate-income Americans -- who qualify under stringent tests.
"Today, however, FHA has strayed far from its original mission and legislative purpose.
"It doesn’t just focus on low- and moderate-income Americans; it provides mortgage insurance for expensive homes valued as high as $729,000.
"By offering riskier terms than private competitors, the FHA today controls 56% -- well more than half -- of the total mortgage insurance market in terms of numbers of loans, talk about Too Big to Fail. So instead of complementing a robust private mortgage market, the FHA high cost loan limits and extremely low down payment requirements put it in direct competition with the private sector.
"In addition, we know that as bad as that is, its single family insurance fund is flat broke.
"The independent actuarial study released last November shows that the FHA single-family mutual insurance fund has a negative – I repeat, negative – economic value of $16.3 billion.
"If the FHA were a private financial institution, likely somebody would be fired, somebody would be fined, or the institution would find itself in receivership. Instead, it is merely, and merrily, on its way to becoming the recipient of the next great taxpayer bailout.
"Finally, given their high Loan-To-Value, low credit score policies and high rates of default, it is an open question whether FHA has now morphed into Countrywide. Arguably, the FHA has now become the nation’s largest subprime lender – all with the blessing of the Administration.
"FHA’s loan down payments lure families into having an unrealistic view of homeownership obligations. Their high home loan limits encourage people to buy more home than they can possibly afford to keep. Putting borrowers in homes where 1 in 8 loans end in default, the FHA can make entire communities worse off, trapping more and more families as property values fall.
"You do not help families achieve the American dream by putting them into homes they cannot afford. This is how you turn the American dream into a nightmare."