WASHINGTON — The Senate Banking Committee examined the Federal Housing Administration's fiscal problems on Thursday, with lawmakers still divided on the best approach to take for reforming the troubled agency.

An independent audit last year determined the FHA faces a projected capital shortfall of $16.3 billion, meaning the agency could be forced to request its first-ever transfer from the Treasury Department, thanks in large part to historic losses sustained during the financial crisis.

Lawmakers pressed housing industry experts on a variety of issues, including on the agency's mission — whom it should be serving and how to best structure its loans in light of that. The tone of the hearing, which lasted just over 90 minutes, was less heated than recent House banking panel meetings on the topic, but it's still not clear that the Senate is any closer to a resolution.

The committee's leaders, Chairman Tim Johnson, D-S.D., and Ranking Member Mike Crapo, R-Idaho, both emphasized the need for a bipartisan solution to help the housing agency shore up its finances, but questions remained about whether those efforts should be combined with long-term reforms of the housing finance system.

"Why is it important to stabilize FHA's finances first before we consider broader FHA reform?" Johnson asked panelist David Stevens, president and chief executive of the Mortgage Bankers Association and a former FHA commissioner.

Johnson urged the Senate to take up a bill during last year's lame duck session that would allow the agency to raise the ceiling for insurance premiums and make other changes that would help it address its financial issues, but that effort proved unsuccessful.

Stevens said that the agency is part of a larger constellation of government entities in the housing market, including government-sponsored enterprises Fannie Mae and Freddie Mac, arguing that they all should be address comprehensively.

If Congress pursues "a policy change in one arena, nothing will essentially squeeze the balloon. It expands to the business in one of the other government agencies," he said, noting, for example, that when FHA raised mortgage insurance premiums it shifted business back to the GSEs. "In order to move forward, when we talk about the future state of the GSEs, we have to stabilize FHA so that FHA is off the table. …And then we can simultaneously move on to the broader discussion."

Sen. Elizabeth Warren, D-Mass., raised the same issue during her remarks at the hearing.

"We've got Fannie and Freddie out there that are creating a huge problem," she said. "I understand the urgency about addressing the FHA, but I'm concerned about approaching reforms in one without approaching reforms in the other."

But Sen. Pat Toomey, R-Penn., argued that Congress should pursue more substantial changes now, warning the "perfect solution" for housing finance may never be realized.

"I'm not of the opinion that we have to wait until we have the perfect solution for every possible entity. That day may never come," Toomey said. "We know we've got problems, we have asymmetries in various features that have market distorting effects already. There are certainly things we could do on FHA in my view even if we can't do some of the other things that are also necessary eventually with Fannie and Freddie."

Lawmakers also questioned witnesses about various proposed reforms to the agency, including on whether borrowers should face lower loan limits or even income restrictions. Others raised concerns about mortgage insurance costs and loss mitigation strategies. Stevens said that the MBA is currently reviewing the pros and cons of different policy options, and will release a white paper on its findings soon.

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