February 06, 2013

Lawmakers concerned about FHA role, soundness

House Financial Services Committee Republicans aired concerns about the Federal Housing Administration's role in insuring residential mortgages during a hearing that included testimony from think-tank and market analyst witnesses.

In Wednesday's hearing, committee Chairman Jeb Hensarling, R-Texas, said the FHA has strayed from its mission, as it now accounts for more than half of the mortgage insurance market. Rep. Randy Neugebauer, R-Texas, echoed that, adding that the government doesn't do a good job of pricing risk. Rep. Gary Miller, R-Calif., however, said that while Congress should work to lessen taxpayers' exposure, it should do so with caution.

NAFCU President and CEO Fred Becker reiterated the association's support for the FHA's role in the housing finance market in a letter sent in advance of Wednesday's hearing. However, he urged lawmakers to step up their oversight of the entity, noting the FHA's three-year lockout period could encourage strategic defaults. (Becker's comments were picked up by Politico's Morning Money and The Hill's Overnight: Money reports.)

Despite the FHA's troubles, the agency's work is contributing to the economic recovery, said Julia Gordon, director of housing finance and policy for the Center for American Progress.

According to Gordon, FHA-backed loans since 2010 have performed well. She said the average FICO score of the borrowers is about 700. She added that the FHA backs 30-year loans, not those with exploding adjustable-rate terms and the like.