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Chairman Hensarling Opening Statement at FHA Bailout Hearing
Washington, Oct 29 -
Financial Services Committee Chairman Jeb Hensarling (R-TX) delivered the following opening statement at today’s full committee hearing on the Federal Housing Administration’s recent $1.7 billion taxpayer-funded bailout.
“On February 6 this Committee held its very first hearing of the 113th Congress on the topic of the declining fiscal health of the Federal Housing Administration. We heard from witnesses that FHA was ignoring warnings about its solvency, failing to use its existing tools to price insurance appropriately, and failing to minimize losses.
“Today, eight months later, our witnesses have been proven correct. The FHA is indeed broke; it is officially bailout broke. Twenty-nine days ago FHA became the recipient of the latest Washington bailout -- funded courtesy of hardworking taxpayers -- to the tune of $1.7 billion.
“On February 13, when our witness, Commissioner Galante came before us to discuss the state of FHA’s single-family insurance fund, she testified that FHA was making changes to ‘accelerate’ the fund’s recovery. Regrettably, seemingly, FHA has only ‘accelerated’ our national bankruptcy by accelerating the national debt clock which can be seen on the monitors to both my left and my right.
“When Commissioner Galante last appeared before us, the national debt stood at $16.5 trillion. A mere eight months later, the national debt now stands at a staggering $17.3 trillion and counting – over $140,000 per American household, on average. $1.7 billion of that is courtesy of the FHA bailout.
“Our spending-driven national debt is the greatest existential threat that is facing our nation today. The former Chairman of the Joint Chiefs of Staff has said that the ‘biggest threat to our national security' is our national debt. The Democratic co-chairman of the President’s Fiscal Commission, Erskine Bowles, said ‘this debt is like a cancer’ that ‘will destroy this country from within.’ Just last month, the Congressional Budget Office warned us yet again that our federal debt is ‘unsustainable.’
“Yet a number of my Democratic colleagues have asked to have the debt clock removed, taken out from sight. Reflecting a ‘see no evil’ attitude, and in fact President Obama has said ‘don’t pretend as if America’s going bankrupt…’ I have but little doubt similar words were spoken in both Greece and Detroit.
“Barely a week ago the Congressional Budget Office delivered more bad news, reporting that FHA has consistently misstated its projected recovery. Specifically the CBO has said mortgages insured by FHA over the past two decades have had a net cost of $15 billion, even though initial estimates from FHA suggested $45 billion in profits. That’s a remarkable $60 billion swing in the wrong direction. Another rosy scenario dashed at an agency that regrettably has a history of such. Whether it was Assistant Secretary Stevens telling us back in 2009 that FHA’s financial troubles would last a short period of time, or Secretary Donovan testifying in 2011 that the insurance fund ‘s ‘prospects for the future are good,' or Commissioner Galante reporting in 2012 that reforms and enforcement efforts underway “positioning FHA well for the future.” These assurances today ring a little bit hollow.
“The taxpayer-funded bailout of FHA reinforces everything that many have said about FHA for some time – that it is a high risk to taxpayers, it is a high risk to the mortgage insurance market and it is a high risk to our economy. The Government Accountability Office underscored those points in February when it added FHA to the list of programs considered a ‘high risk due to their vulnerability to fraud, waste, abuse and mismanagement or the need for transformation.’
“The $1.7 billion bailout of FHA also reinforces the need for the Protecting American Taxpayers and Homeowners Act, the PATH Act.
“The PATH Act will achieve needed objectives for the FHA. It will put FHA on sound financial footing and keep it there. It clearly defines FHA's mission to ensure that the agency is serving first-time homebuyers and low-to-moderate-income borrowers. The PATH Act shifts risk away from the taxpayers and into the private sector by reducing FHA's footprint and making sure the agency is complementing the private sector, not competing with it. It ensures that FHA runs its single-family insurance fund according to the basic tenets of mortgage insurance. And finally, the PATH Act mandates the insurance of the 30-year fixed mortgage and retains FHA’s countercyclical role.
“The American people clearly want to end the destructive cycle of boom, bust and bailout that Washington policies have helped fostered. They do not want an economy laid low by unsustainable levels of debt. Regrettably The FHA, as it operates today, exacerbates both. The FHA has gone from backstopping the market to supplanting the market.
“The time for FHA reform is now. We can truly wait no longer."