Precarious Health of FHA a ‘Clear and Present Danger’ to the Economy

Targeted News Service (Press Releases)

WASHINGTON, Nov. 22 -- Rep. Jeb Hensarling, R-Texas, chairman of the House Financial Services Committee, issued the following news release:

The declining fiscal condition of the Federal Housing Administration (FHA) Mutual Mortgage Insurance Fund represents "a clear and present danger to taxpayers, homebuyers and the U.S. economy" and must be addressed by Congress, said Financial Services Committee Chairman Jeb Hensarling (R-TX).

The FHA today released its fiscal year 2017 annual report on the economic health of the agency's capital reserve fund, which is required to be at least 2 percent of the $1.23 trillion of mortgages it guarantees. Today's report reveals the fund's capital ratio declined from 2.35 percent to a precarious 2.09 percent from fiscal year 2016.

""FHA has suffered a severe case of mission creep, and the unfortunate truth is that the lack of sound underwriting and risk management puts taxpayers, homebuyers and our overall economy in harm's way. The danger is real. Unless and until Congress passes serious reforms to give Americans a sustainable housing finance system, we will constantly be on the edge of another housing meltdown and financial crisis," said Chairman Hensarling. "To be successful, the FHA must be fiscally sound and have a clearly defined mission to ensure homeownership opportunities for creditworthy first-time homebuyers and low-income families."

Historically the FHA's mission has focused on first-time homebuyers and other creditworthy low- or moderate-income borrowers. Yet since the onset of the financial crisis of 2008, the FHA has morphed from a mortgage insurer of last resort to a dominant component of our mortgage finance system by expanding its insurance to higher income borrowers and houses in the upper end of the marketplace.

"As I did back in January (https://financialservices.house.gov/news/documentsingle.aspx?DocumentID=401417), I once again commend President Trump's decision to suspend the outgoing Obama administration's ill-advised and 11th hour rule change on FHA mortgage insurance premiums. Without this action by President Trump on his first day in office, this annual report confirms that the FHA would be in even worse shape today," said Chairman Hensarling.