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FHA caught between a rock and a hard place

Republicans, Democrats and mortgage professionals can't agree on the FHA

December 13, 2013

The Federal Housing Administration just can’t seem to make anyone happy.

Whether the agency is receiving mortgage industry pushback for its decision to lower the loan limits for home loans in certain high-cost areas or criticism from lawmakers who want to reduce its footprint, the administration is always caught between a rock and a hard place.

While mortgage and housing trade groups sent a letter advising HUD Secretary Shaun Donovan to think about the agency's decision to lower the FHA loan limits in various U.S. counties, it’s worth mentioning that FHA is required to take this step if it’s ever going to meet lawmakers’ ongoing goal of making way for private capital by reducing the federal housing agency’s footprint.  

Lower loan limits generally mean some of that FHA business is going to have to land in the private sector, pulling risk away from the government.

Members of Congress also want the agency returning to its core mission of providing credit to low-income borrowers, which excludes the $700,000 mortgages once possible with the temporary loan limits that HUD just nixed heading into 2014.  

But the divide over the FHA doesn’t stop there.  

As of Friday, the administration announced that its mutual mortgage insurance fund is facing a projected $1.3 billion shortfall even though it managed to save $15 billion over the past year and saw delinquencies and loan quality improve overall.

Analysis of the FHA actuarial report divided some lawmakers along party lines, with the FHA stuck in the middle as Congress tries to figure out how to pull the agency out of the market, while preserving the organization's support to key parts of housing.

House Financial Services Committee Chairman Jeb Hensarling, R-Texas, used the occasion to point to his Protecting American Taxpayers and Homeowners Act, or PATH, which aims to reduce the FHA’s footprint to protect taxpayers.

Yet, with mortgage and real estate associations and other lawmakers fighting to keep the FHA a part of the originations market, the battle is going to require some give or take.

Rep. Maxine Waters, D-Calif., found the report positive despite the shortfall, noting that the FHA MMI Fund reduced its deficit by $15 billion. She’s also not a fan of carving back the FHA’s role dramatically.  

"We must remember that during the worst of the crisis, when the private sector virtually fled the struggling market, FHA provided the liquidity that helped restore confidence," Waters explained.

"For this reason, it is important we have a healthy FHA, to support responsible homeownership for those who otherwise have limited access to credit, such as first time and low-income homebuyers. A stable and solvent FHA will ensure we have a strong backstop in the unfortunate event of another housing downturn."

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