WASHINGTON -- The Housing and Insurance Subcommittee continued its examination of the “Future of Housing in America” today, holding its sixth hearing of the 114th Congress on the topic. Today’s hearing focused on the fiscal health of the Federal Housing Administration (FHA), particularly its Mutual Mortgage Insurance Fund (MMIF) and Home Equity Conversion Mortgage (HECM) – the reverse mortgage insured by the federal government.
“FHA has suffered a case of mission creep, and the unfortunate truth is that the lack of sound underwriting and risk management puts both homebuyers and U.S. taxpayers at risk,” said Subcommittee Chairman Blaine Luetkemeyer (R-MO). “While the most recent independent actuarial report showed signs of a modestly healthier agency, the bottom line is that FHA is still in a precarious state.”
Key Takeaways from the Hearing:
- Historically the FHA’s mission has focused on first-time homebuyers and other creditworthy low- or moderate-income borrowers. Yet since the onset of the financial crisis of 2008, the FHA has morphed from a mortgage insurer of last resort to a dominant component of our mortgage finance system by expanding its insurance to higher income borrowers and houses in the upper end of the marketplace.
- The FHA’s efforts to grow its way out of its fiscal problems by lowering its premiums and claiming an even greater share of the mortgage-insurance market is misguided and counterproductive: it places taxpayers at risk of even bigger bailouts; it underprices risk and results in even bigger losses at the FHA; and it displaces and discourages private sector participation in the mortgage-finance marketplace.
- Since 2000, FHA has hit the target economic value for the MMIF only three times. Most recently, it was because the agency experienced a dramatic uptick in the value of its reverse mortgage, or HECM, portfolio.
To qualify for FHA insurance, a mortgage must be originated by an FHA-approved lender, and the mortgage and the borrower must meet certain criteria. In Fiscal Year 2015, the FHA endorsed 1,116,232 mortgages, representing approximately $213 billion in single family loans. $140 billion (66 percent) was used for the purchase of new and existing homes, while $73 billion (34 percent) was used to refinance existing mortgages.
“The underlying problems at FHA, high volatility and questionable underwriting, have existed for years and continue to pose a threat to all Americans,” said Chairman Luetkemeyer. “We need to continue to focus on commonsense reform and creation of a more stable housing market and housing finance system.”