WASHINGTON The Rural Housing Service should merge with the Federal Housing Administration to save money and improve service, the head of the Government Accountability Office testified Tuesday.
Matthew Scire, the GAO's director of financial markets and community investment, pointed to an agency report that showed FHA serves a lot of rural homebuyers and said there is a lot of overlap between the two government-backed loan programs.
"FHA is in rural areas and it is serving the same income base," Scire told a House Financial Services subcommittee hearing.
But Tony Hernandez, the director of the RHS, defended his agency, saying the two programs do not have significant overlap.
"Our customers can't qualify for an FHA loan," he told lawmakers.
The exchange touched off a debate over the issue, with the GAO's Scire arguing that the rural housing program doesn't know how many of its borrowers could qualify for an FHA mortgage.
"There is a bit of denial here as to who RHS is serving," Scire said.
He added that RHS is moving away from direct lending where RHS staff originates loans and instead is relying more on private lenders like FHA.
"We think the agencies should take a serious look at opportunities for consolidation," Scire said.
He noted that RHS has a larger staff than FHA, even though it is a smaller program. FHA endorsed $786.2 billion in single-family loans in fiscal year 2014, while RHS endorsed $19 billion in loans.
Hernandez testified that his agency is advancing several legislative proposals to improve its loan guarantee program. The agency wants to delegate loan approvals to its lenders, similar to what FHA has today. RHS also wants congressional approval to charge a $50 user fee on new loans to cover the costs of updating and maintaining it underwriting technology.
"We have a number of proposals to change the way we do business," Hernandez testified.
But Rep. Blaine Leutkemeyer, R-Mo., the chairman of the housing subcommittee, said those plans did not go far enough and appeared intrigued by the idea of merging the RHS and FHA.
"You are not listening to us," Leutkemeyer told Hernandez. "Just tell me that you are looking to cut people. Be innovative and cut your staff to be at the same levels as FHA."