WASHINGTON — Republican lawmakers on Wednesday harshly criticized the Federal Housing Administration's recent move to lower insurance premiums, saying it violates the law and will be used to entice borrowers into predatory loans.

House Financial Services Committee Chairman Jeb Hensarling, R-Texas, said the FHA needed to wait until its reserve fund reached its statutory minimum of 2% before enacting any cuts.

"FHA continues to violate federal law by keeping a woefully insufficient capital reserve," Hensarling said. "This cannot be allowed to stand."

But Department of Housing and Urban Development Secretary Julian Castro, who testified at a hearing on the issue, said the fund is still on the path to recover within two years. He also noted that the loans originated over the past two fiscal years were the most profitable in the FHA's history and that premiums have been raised five times since 2010.

After questioning from Rep. Sean Duffy, R-Wis., Castro acknowledged that the 50-basis-point reduction in fees would slow full restoration of the fund.

"I agree with you that we would get to 2% a little bit more quickly, but not significantly more quickly," Castro testified.

Duffy said it was proof of Republican arguments.

"But that is our point," said Duffy, who chairs the House oversight and investigations subcommittee. "You are in violation of the law. You should do everything you can to get in compliance with the law. Reducing those fees at time when that you are not in compliance rubs us the wrong way."

Rep. Scott Garrett, R-N.J., stressed that FHA loans have predatory characteristics — low down payments, low credit scores, high loan limits and higher defaults than prime loans. Now the FHA is lowering the premiums to "entice people" to take out an FHA loan to save $25 or $50, he said.

"Don't you a care about those people? Are you so inclined to write more loans that you are just trying to entice them for $20 or $30 to get into a house that they can't afford?" Garrett said. "This is what brought us to this crisis in the first place and you are going down the exact same road."

In responding to Garrett, Castro replied, "I assume intelligence in the American people."

He stressed that the FHA does not offer toxic loan products and it has always had strong underwriting standards. In addition, the agency has adopted more safeguards over the past few years to strengthen its underwriting.

"The premium reduction is not changing who actually qualifies for an FHA-insured loan," Castro said. "It simply makes it more affordable for hardworking Americans."

Democratic members of the Financial Services Committee supported the premium reduction.

"Your decision enjoys such broad support because providing this much-needed mortgage relief will deliver critical assistance to millions of families looking to purchase a home — and enable countless others to save millions of dollars in mortgage payments over the years to come," said Rep. Maxine Waters, D-Calif., the panel's top Democrat.

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