Hensarling, Galante At Odds Over FHA’s Well-Being

13213_delinquencies Hensarling, Galante At Odds Over FHA's Well-Being The chairman of the House Financial Services Committee has declared the Federal Housing Administration (FHA) to be ‘bailout broke,’ while the new FHA commissioner insists that the agency is both sound and ready to help ‘encourage the return of private capital to the housing market.’

Rep. Jeb Hensarling, R-Texas, the Financial Services Committee chairman, has announced that he will hold a series of hearings throughout the year that focus on the FHA. In announcing the hearings, Hensarling noted an actuarial report from November 2012Â that determined the FHA has a negative economic value of $16.3 billion.

‘The FHA is broke – bailout broke,’ Hensarling says. ‘We need a sustainable mortgage finance system that gives hardworking Americans opportunities to buy homes they can actually afford to keep. Today, however, the FHA's dire financial condition and dominance of our housing finance system are a clear and present danger to every taxpayer who is now at great risk of having to fund yet another Washington bailout. Without serious reform, FHA may become the next Fannie Mae and Freddie Mac.’

The committee's first two FHA hearings will take place on Feb. 6 and Feb. 13.

However, the FHA is insisting that its problems are under control. FHA Commissioner Carol Galante has announced a series of changes to be issued this week that will allow the agency to better manage risk and further strengthen the health of the Mutual Mortgage Insurance Fund (MMIF).

‘These are essential and appropriate measures to manage and protect FHA's single-family insurance programs,’ says Galante. ‘In addition to protecting the MMIF, these changes will encourage the return of private capital to the housing market, and make sure FHA remains a vital source of affordable and sustainable mortgage financing for future generations of American homebuyers.’

Among the measures that the FHA will undertake are the following:

  • The consolidation of the Standard Fixed-Rate Home Equity Conversion Mortgage (HECM) and Saver Fixed-Rate HECM pricing options;
  • An increase of the annual mortgage insurance premium for most new mortgages by 10 basis points (bps) and the increase for premiums on jumbo mortgages ($625,500 or larger) by 5 bps;
  • A new requirement that most FHA borrowers continue paying annual premiums for the life of their mortgage loan;
  • A new requirement that lenders manually underwrite loans for which borrowers have a decision credit score below 620 and a total debt-to-income ratio greater than 43%;
  • A proposed 1.5% increase on down payments for mortgages with original principal balances above $625,500; and
  • A pledge that the agency will improve its risk management procedures.


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