Chairman Hensarling: "For us to have a healthy economy, we must put the nation on a sustainable fiscal path. And to have a sustainable fiscal path, we must also have a sustainable housing finance system. I have grave fears that FHA, as it is operating today, is an impediment to both."
February 13, 2013 -
WASHINGTON - House Financial Services Committee Chairman Jeb Hensarling (R-TX) delivered the following opening statement at today’s full committee hearing titled “Bailout, Bust, or Much Ado About Nothing?: A Look at the Federal Housing Administration’s 2012 Actuarial Report.”
“The American people deserve and demand a healthy economy. They deserve it today. What they do not deserve is the anxiety of stagnant jobs and paychecks that shrink in the face of higher gas prices, health insurance premiums, and the list goes on. And they particularly do not deserve the anxiety of wondering whether their children and grandchildren will drown in a sea of debt.
“To my left and to my right, I have up the national debt clock. For those who are unfamiliar, this nation has racked up more debt on a nominal basis in the last four years than in the previous 200. It stands at $136,178 per household. For many constituents in the Fifth District of Texas, that is more than they will ever amass in savings in their lifetime- and they owe it as their share of the federal debt. The spending-driven debt crisis that we have today is the great existential threat to our nation of this generation.
“For us to have a healthy economy, we must put the nation on a sustainable fiscal path. And to have a sustainable fiscal path, we must also have a sustainable housing finance system. I have grave fears that FHA, as it is operating today, is an impediment to both.
“And that is why this committee is holding the second in what will be a series of hearings on the financial health, stability, and mission of the Federal Housing Administration.
“As was well established in last week’s hearing, the FHA is currently facing some tremendous financial challenges stemming from its dramatically increased market share and the dramatically deteriorating economic value of its insurance portfolio.
“I am very pleased that we have Carol Galante, the FHA Commissioner and Assistant Secretary for Housing, here today to help us sort through some of the issues that challenge and surround the status of the FHA.
“In response to the housing crisis of the late 2000s, the FHA has morphed from a mortgage insurer of last resort to a dominant component in our mortgage finance system.
“In fact, the FHA now controls more than 56 percent of the total mortgage insurance market in terms of new loan endorsements, crowding out its private competitors with extremely low down payment requirements and expanding its insurance to higher income individuals and houses in the upper end of the marketplace.
“The policy of cheap up-front pricing and elevated maximum loan limits as high as $729,000 has allowed the total size of FHA’s insurance book of business to explode by more than 64 percent, up to $1.13 trillion in FY12, making it the largest mortgage insurance company in the United States.
“And what is the result for the FHA – and taxpayers – of this unprecedented mission creep?
“The FHA is broke. The FHA is flat broke. And I fear soon the FHA will prove to be bailout broke.
“Now, that is not just my conclusion, it is the conclusion of the annual independent actuarial study of FHA’s Mutual Mortgage Insurance Fund (MMIF) – the government fund that insures the FHA’s single-family mortgages that was released last November. I quote: ‘the economic value of the Fund as of FY 2012 is negative $13.48 billion.’
“And that study did not even factor the FHA’s money losing book of Home Equity Conversion Mortgage (HECM), and I quote from the same report, ‘the economic value of the HECM portion of the MMI fund to be negative $2.8 billion.’
“Clearly, the FHA is in a dire financial predicament where its projected future insurance claims far exceed its current cash on hand, a situation that ought to concern both critics and proponents of the FHA.
“So the conclusions of the annual independent actuarial study give rise to several fundamental questions regarding the FHA that I hope Commissioner Galante can shed light upon.
“As I have said before, hardworking Americans demand a healthy economy and we cannot have a healthy economy until we have a path to fiscal sustainability for our nation and until we have a sustainable housing finance system that is also competitive.”