Magazine article Mortgage Banking

Senate Committee Holds Hearing on FHA's Financial Challenges

Magazine article Mortgage Banking

Senate Committee Holds Hearing on FHA's Financial Challenges

Article excerpt

* On Feb. 28, David Stevens, president and chief executive officer of the Mortgage Bankers Association (MBA), testified before the Senate Committee on Banking, Housing and Urban Affairs on the financial health of the agency he once headed--the Federal Housing Administration (FHA).

Stevens acknowledged that the most recent Actuarial Review for the FHA triggered concerns that the FHA might need a draw from the U.S. Treasury, "and brought into sharper focus questions about whether FHA's policies need to be adjusted." But he also told the committee that FHA has already taken steps to address many of the causes that led to losses in the single-family portfolio.

The steps already taken include raising insurance premiums, increasing down payments for certain borrowers, eliminating the approval of loan correspondents, raising lender net worth requirements, re-examining reverse-mortgage policies and establishing an Office of Risk Management.

Stevens told the Senate banking committee, "By making these changes, FHA has moved swiftly to protect taxpayers and the fund."

But clearly there is still concern among lawmakers about any government program that threatens to be a drain on limited government resources. And FHA currently fits that description in the minds of some lawmakers, given the shortfall in its capital reserve ratio.

In his opening statement, Banking Committee Chairman Tim Johnson (D-South Dakota) said, "While the fiscal year 2012 Actuarial Report projected a negative capital ratio for the Mutual Mortgage Insurance Fund, this does not mean the FHA will have to draw funds from the Treasury. The decision regarding whether the FHA will need funds will be made by the Office of Management and Budget in September. That means the administration and the Congress, if necessary, have a short window of time to develop strategies to manage the FHA's old book of business and reduce losses. …

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