WASHINGTON — House Financial Services Committee members sharply disagreed Wednesday over how to address a projected $16.3 billion capital shortfall at the Federal Housing Administration.
Lawmakers from both parties have expressed concern with the agency's troubled finances since a November actuarial report found that it may have to tap the Treasury Department for funding for the first time, following an unprecedented number of defaults during the financial crisis.
But they sparred over how to address those problems at the panel's first hearing of the year.
Chairman Jeb Hensarling led the charge against the agency, warning about its lending decisions and the drag it's having on the economy.
"Hardworking Americans demand a healthy economy and we cannot have a healthy economy until we have a housing finance system that is both sustainable and competitive. In its current form FHA is clearly an impediment to such a system," the Texas Republican said. "FHA's low down payments lure families into having an unrealistic view of homeownership obligations. Their high home loan limits encourage people to buy more home than they can possibly afford to keep. Putting borrowers in homes where 1 in 8 loans end in default, the FHA can make entire communities worse off, trapping more and more families as property values fall."
But the panel's top Democrat, Rep. Maxine Waters, countered by highlighting the agency's role in the market and the changes it's made since the crisis to help shore up its balance sheet.
"While we all agree that the government footprint in our mortgage market must shrink, we have to balance that concern with an understanding that the presence of FHA has mitigated the length and severity of the housing downturn," Waters said in her opening statement. "I would also like to explore more fully the recent actions taken by the FHA to address prior problems by tightening up their origination policies and stepping up their lender enforcement efforts."
The California Democrat was also quick to dispute several GOP claims during questioning. She first addressed a business advertisement introduced by Hensarling during the hearing that encouraged those with bad credit and debt to call about securing an FHA loan.
"One of the great things about this process are these hearing opportunities where we have the opportunity to straighten the record, present the facts and to unfold what's really happening in these issue areas," said Waters. "Did you say the ad you just read was by some unknown private business? So this was not an FHA ad soliciting anything."
She also pointed to how the projected shortfall in the actuarial report was calculated, arguing that the agency is not immediately insolvent.
"The fund's negative value is a future projected shortfall, not a current deficit. … The report also showed that FHA still has more than $30 billion in combined capital resources, and the method in which the FHA's [mutual mortgage insurance fund] is calculated does not include future projected income," Waters said.
Rep. Michael Capuano, R-Mass., a senior member on the panel, joined Waters in her support of the agency, pointing to the number of actions it's taken to address its balance sheet in the wake of the crisis.
"I have listed 15 different steps that the agency has taken over the past several years to address these very issues. … I'm not suggesting that they can't or shouldn't do more, but I think that needs to be recognized as well, and that their book has gotten better over the past three years," said Capuano.
He also urged Hensarling and the rest of the committee to again take up the FHA Emergency Fiscal Solvency Act, which passed the House last year and would allow the agency to raise the ceiling on its mortgage insurance fees. Senate Banking Committee Chairman Tim Johnson led an unsuccessful effort to secure a vote on a similar bill during the lame duck session.
"Let's put up the bill that this committee voted on last cycle," Capuano said. "Let's put it out today so we can get moving on some of the things that FHA has said it needs to do legislatively, and I think everybody agrees we want to give them the power to do. So let's do that instead of just beating each other up."
But Republicans at the hearing continued to hammer on the dangers of the agency's waning capital reserves and the decisions that led it to this position.
"I agree that FHA has been a shock absorber for this economy, but it's kind of been broken," said Rep. Gary Miller, R-Calif., the panel's new vice chairman. "I also agree that real estate is probably one of the bright spots in the economy today … but that doesn't change the fact that FHA is undercapitalized. Every projection that they've made … has been wrong. And the problem I have is yes, I agree that much of the major losses may have occurred in 2007, 2008 and 2009… but they've not done what's necessary to keep themselves in the plus column."