Castro: It’s Possible To Loosen Credit And Keep FHA Solvent

During a confirmation hearing held Tuesday before the Senate Banking Committee, a calm and cool Julian Castro, President Barack Obama's nominee to head the U.S. Department of Housing and Urban Development (HUD), said it's possible to loosen credit requirements for lower-income borrowers and still keep the Federal Housing Administration (FHA) solvent.

Castro, currently the mayor of San Antonio, told the committee that the FHA should continue to play a role in ensuring that creditworthy first-time home buyers ‘have the opportunity to reach the American dream of homeownership.’

However, the FHA also needs to have ‘policies in place that ensure what happened a couple of years ago doesn't happen again,’ Castro said.

Last fall, the FHA required a $1.7 billion subsidy from the Treasury Department to cover losses of more than $50 billion resulting from loan defaults – including losses on its Home Equity Conversion Mortgage (HECM) or reverse mortgage product. It was the first ‘bailout’ for the agency in its 80-year history.

In March, White House budget officials, in presenting the president's proposed budget plan, said the FHA had made great strides in shoring up its reserves, mainly by increasing the fees it charges, and thus would not likely need a second Treasury draw later this year.

The balancing act for the FHA has been keeping fees low enough so that lower-income borrowers have adequate access to mortgage credit while at the same time avoiding increased risk.

Castro didn't provide details on how he would free up more mortgage credit for the underserved.

Castro also commented on housing finance reform, saying he supports the idea, without endorsing any particular proposed bill. In particular, he said he supports the idea of developing a single common security for government-sponsored enterprises Fannie Mae and Freddie Mac.

Castro will replace outgoing HUD Secretary Shaun Donovan, who has been named to lead the Office of Management and Budget in a recent reshuffling of White House staff.

Also appearing at the hearing was Laura Wertheimer, the nominee for inspector general of the Federal Housing Finance Agency.

For more, check out this video on Bloomberg News.


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