WASHINGTON — During a pair of appearances Tuesday on Capitol Hill, top housing officials from the Obama administration sought to reassure members of Congress about the financial condition of the Federal Housing Administration.
Shaun Donovan, secretary of the Department of Housing and Urban Development, faced sharp questions from Republican senators about the state of the FHA's finances.
"Without any caveats or qualifiers, can you assure this committee that the American taxpayer will not need to bail out the FHA fund?" asked Sen. Richard Shelby, the Senate Banking Committee's top Republican, during a committee hearing.
Donovan responded, "I wish I had a crystal ball with exactly how the housing market would perform the best of this year and beyond. The fact is that I am confident, and I remain confident, that we are taking responsible steps to protect the FHA fund, and at the same time, to ensure that our housing market continues to recover."
Earlier this month, the Obama administration projected in its budget proposal that a key FHA account, which holds reserves that exceed expected losses, would be depleted in the next year.
HUD officials have argued the projection was outdated as soon as it was released, due to an expected influx of roughly $1 billion from the recently announced settlement with the nation's five largest mortgage servicers.
On Monday, the FHA, which is part of HUD, announced further steps to shore up its financial position. The agency announced that on April 1, it will increase premiums on all single-family loans that it insures.
In testimony before the House Financial Services Committee on Tuesday, FHA head Carol Galante said that the increase in upfront premiums will cost homeowners an average of $5 per month.
Galante said that loans the FHA has originated in the last two and a half years are performing well. "Just to be clear, FHA is not broke," she said.
Galante blamed the agency's current woes on loans originated primarily from 2006-2008.
Asked about the performance of those earlier loans, Galante said, "Generally I would say they're not getting better at this point, and we have projected substantial losses from those books."