When the Federal Housing Administration tested its financial condition for the fiscal year 2012 using the Federal Reserve large financial institution stress test, it found that in the worst case scenario, losses could amount to $115 billion over the next 30 years.
What’s interesting is that internal emails between the housing agency indicated that since such information would raise stress levels if presented to Congress, officials decided not to disclose the results at all.
For instance, Charles Capone, director of the FHA Office of Evaluation, wrote in an email, stating "We just do not want that analysis to be in the actuarial review report for the first time this year. In Congressional hearings, it is quite possible that we will be required to present this information on-the-record…"
So how was this evidence dug up about the undisclosed results of the stress test?
You can thank the House Oversight and Government Reform Committee.
The findings are part of an investigation headed by Rep. Darrell Issa, R-Calif., in which he sent a letter to FHA Commissioner Carol Galante, outlining such findings and also disclosing his concern over how 'troubling' this news was.
"Documents and communications produced to the Committee by IFE Group clearly show that FHA was determined to avoid disclosing the magnitude of the FHA’s capital inadequacy under the Fed’s CCAR; therefore depriving Congress of meaningful and relevant information central to its oversight function," Issa explained.
HousingWire reached out to the FHA who did not explain why the information was undisclosed, but provided this comment, "We are reviewing this matter and will respond to the Committee appropriately," said Addie Whisenant, HUD press secretary.
While this is significantly down from the original $13.5 billion projected losses in its November actuarial report, it’s nearly $1 billion the housing agency has to collect to avoid a first-time draw from Treasury.
Responding to the stress test results, Edward Pinto, resident fellow for the American Enterprise Institute, said this is an all too common "do as I say, not as I do" scenario.
"Imagine for a moment if say one of the large banks did the same thing. Any public traded private company engaging in practices similar to what FHA is alleged to have done, would be hearing from the SEC and be on the wrong side of a flurry of class-action lawsuits," Pinto pointed out.
Issa and his Committee are now pushing FHA for more information.
Toward the end of his letter to Galante, he requests that the FHA produce all documents and communications referring or relating to the preparation of the fiscal year 2012 actuarial review of FHA’s mutual mortgage insurance fund for the period of 2011 to the present.
The FHA has until June 12 to produce such data and the Committee is also requesting that Galante, Capone and Frank Vetrano schedule an appointment to speak about the investigation by June 7.