At the second in a series of ""hearings"":http://financialservices.house.gov/calendar/eventsingle.aspx?EventID=319161 held by the ""House Financial Services Committee"":http://financialservices.house.gov/ on the role of the ""Federal Housing Administration (FHA),"":http://portal.hud.gov/hudportal/HUD?src=/federal_housing_administration the agency's commissioner, Carol Galante, faced a series of questions and criticisms from lawmakers while staunchly defending the role and actions of the FHA in recent years. The first hearing in the series took place ""last week."":https://themreport.com/articles/house-committee-holds-hearing-on-fhas-viability-2013-02-06
[IMAGE]Chariman Jeb Hensarling (R-Texas) opened the hearing by declaring, ""The American people deserve and demand a healthy economy.""
""The spending-driven debt crisis that we have today is the great existential threat to our nation of this generation,"" Hensarling said.
In order to set the nation on a sustainable fiscal path, the nation must develop a sustainable housing finance system, according to Hensarling. ""I have great fears that FHA as it is operating today is an impediment to both,"" he said.
It was established during the hearing that FHA insures 56.4 percent of mortgage loans today. The VA insures another 23.9 percent, leaving the private sector with a minimal 19.7 percent market share.
Galante was quick to assert in her testimony that FHA's ""market share has been declining steadily since its peak in 2009.""
[COLUMN_BREAK]In regards to FHA's capital position and fears of a potential federal bailout--which, according to an economist quoted by Hensarling, could exceed the entire Troubled Asset Relief Fund--Galante said the agency currently holds $31 billion in reserves against projected losses and expects to acquire additional revenue from recent books of business.
Hensarling was the first but not the only representative to point out that despite a law mandating the FHA maintain a 2 percent capital reserve at all times, the agency has not reached that mark in at least four years, while it continues to push back projections of when it finally will.
Rep. Michele Bachmann (R-Minnesota) criticized the FHA for allowing borrowers with poor credit, low incomes, and little down payments to obtain mortgages they are unlikely to be able to maintain. ""Who's being helped by this situation?"" she asked.
""What the government is doing right now is hurting the housing industry,"" Bachmann stated.
Galante countered that ""FHA is designed to fill in market gaps,"" and according to her, the agency ""has done just that.""
During her testimony, Galante said the FHA has helped 2.5 million families obtain mortgage loans over the past four years. Of these, 2.8 million were first-time home buyers.
Galante said the housing crisis would have been worse without the access to credit the FHA provides. ""Moody's Analytics estimates that were it not for FHA's presence during the crisis, house prices would have fallen 25 percent further than they did already,"" Galante stated.
Regardless, Bachmann argued that risky lending is not helping. ""Your lending practices are in the realm of predatory lending that we've been trying to mitigate,"" she said.
Galante admitted the FHA has an overall 10 percent default rate but ultimately said, ""I don't think that is unacceptable.""