The PATH Act Puts FHA Back on Sound Financial Footing

Oct 29, 2013 Issues: Financial Services

WASHINGTON, DC—Congressman Randy Neugebauer (R-TX), Chairman of the Financial Services Subcommittee on Housing and Insurance, gave the following statement at a hearing today on the $1.7 billion taxpayer bailout of the Federal Housing Administration.   

“Mr. Chairman, thank you for holding this hearing on the recent $1.7 billion taxpayer-funded bailout of the Federal Housing Administration (FHA). I believe this hearing – our sixth on FHA – is vitally important because it is a testament to how critical the reforms in the PATH Act are to the survival of the agency.

“FHA plays a valuable role in helping first-time and low-income borrowers buy a home. When young families purchase homes and set down roots, our neighborhoods and communities are strengthened. So a healthy FHA is important.  The problem is that FHA isn’t healthy. 

“In our previous six hearings we heard of FHA’s dire financial condition. We heard that FHA’s MMI Fund capital reserve ratio stands at negative 1.44 percent – well below the Congressional mandated ratio of 2 percent. We heard that FHA does not have sufficient reserves to cover its expected losses. And we heard that FHA’s MMI Fund’s economic value stands at negative $16.3 billion.

“But 29 days ago, FHA finally confirmed how alarming its financial condition is by tapping the Treasury for $1.7 billion of taxpayer funds. This latest taxpayer-funded bailout is on top of the $190 billion the taxpayers have already sunk into the operations of Fannie and Freddie.

“The situation at FHA is pretty dire; however this won’t be the story we will hear from our witness today. We will hear how profitable FHA’s new books of business are; how FHA is on a pathway to grow out of its past mistakes; and how FHA’s new and improved underwriting standards will limit taxpayer risk.

“But we have heard this story before. Just four years ago, Secretary Donovan confidently declared that ‘FHA will not need to ask the American taxpayers for any bailout’ and that the Congressionally-mandated reserve ratio would return above 2 percent by 2012.

"The fact is that FHA is not just bailout broke; it is broken. The problems at FHA go well beyond solvency. For starters, FHA doesn’t even have a defined mission to guide its operations. And despite being a mortgage insurance company, FHA runs its operations counter to the most basic principles of insurance and sound business practice.

“While state-regulated mortgage insurers are required to halt all new business once capital reserve ratios fall below 4 percent, FHA has expanded its business with impunity despite being vastly undercapitalized, thus digging a deeper hole for the American taxpayers. This is no way to run an organization and the American people deserve better.

“The commons sense reforms in the PATH Act would create a more sustainable, sensible and efficient FHA by achieving four objectives. First, it gets FHA back on sound financial footing so taxpayers are better protected. Second, it clearly defines FHA's mission to ensure that the Agency is narrowly focused on serving first-time homebuyers and creditworthy low-to-moderate-income borrowers. Third, it shifts risk away from the taxpayers by ensuring the Agency is complementing the private sector, not directly competing with it. Finally, it ensures that FHA is run as if it were an independent mortgage insurance company, free from political influence.

“These reforms will strengthen FHA and prevent the type of taxpayer-funded bailouts that bring us here today. That is why I ask my Democratic colleagues to support the FHA reforms in the PATH Act that not only deal with the fiscal issues at the agency, but structural as well. We owe that to the American people so FHA can be there for generations to come. I thank the Chairman for holding this important hearing.”