House Financial Services Committee Chairman Jeb Hensarling (R-TX) joined CNBC’s Squawk Box this morning to discuss the committee’s current hearing series on the state of the Federal Housing Authority (FHA). Hensarling also discussed what to expect from President Obama’s State of the Union Address tonight.
“The president has had so many failed policies, but particularly his housing policies are ones that help lead the list.”
Hensarling on the current state of the FHA
“[No,] we shouldn't shut down the FHA. But at the same time, we shouldn't be loaning money to people to buy homes who can't afford to keep them. I mean, that's just devastating to American families. A lot of what you see in FHA today – when you look at their default rates – they're hurting many people that supposedly, purportedly they are there to help.
“And in addition, four years running—four years running they've been below their statutory minimum of capital. If this was a private insurance company, somebody would have been fired, somebody would have been fined, and the interest company probably would have been put into receivership. Historically, the FHA has been about helping those low income and first-time home buyers who otherwise have good credit. It's traditionally been about 10, maybe 15 percent of the marketplace. Today, it's 56 percent of the marketplace.
“What we're trying to do…is have a sustainable housing finance policy in America. You can't have new capital come in as long as you have FHA only requiring 3.5 percent down, allowing six percent buybacks, and allowing people to have these incredibly low FICO scores that dangle home ownership in front of them, only to take it away. I just think it's ironic that as we condemn so many people engaged in subprime lending, it’s now Uncle Sam who’s doing it.”
Hensarling on why FHA reform is important
“The ultimate question is how do we have a sustainable housing finance policy – and sustainable in two ways? Number one, that avoids an incredible, dramatic boom/bust cycles that we've seen. We saw it in the '80s; we’ve seen it most recently. [To be] sustainable, again, you don't do struggling working families any good to put them in homes that they can't afford to keep. And so all we're saying is the FHA ought to take its traditional role that it's had for decades which it currently doesn't have now.”
“What we're proposing is – you know, five years after the crisis – that they assume their traditional role within the marketplace. Again, you're not going to have a sustainable, competitive, innovative marketplace as long as they're taking 50 to 60 percent of the market.
“You can't compete with Uncle Sam and somebody who ultimately has a printing press for money in the back.”
Hensarling on the president’s failed housing polices
“The president has had so many failed policies, but particularly his housing policies are ones that help lead the list. I mean, what we see in many respects is that the taxpayers continue to shell out more money and we continue to have these incredibly high default rates where people default not once, and twice and three times. Ultimately, we have to have a sustainable policy.”