Earlier this month, Senators Tim Johnson, D-S.D., and Mike Crapo, R-ID, reached a bipartisan agreement on legislation that aims to ensure the solvency of the Federal Housing Administration.
The Senators revisited the legislation Wednesday, asking the Senate Committee on Banking, Housing and Urban Affairs to focus on the stability of the FHA during the hearing, as the members sought to reach similar bipartisan agreements on housing finance reform legislation in the coming weeks and months.
"Earlier this year, ranking member Crapo and I agreed that addressing the stability of the FHA's finances would be first on our housing agenda, followed closely by a broader housing finance reform effort," said Sen. Johnson in the hearing, which is titled "The FHFA Solvency Act of 2013."
"The FHA serves a critical role in our housing market by insuring affordable, well-documented and underwritten mortgages for families across the country. That insurance maintains liquidity in the mortgage market during a recession, fulfilling the FHA’s countercyclical mission," said Johnson. "Without the FHA, the housing crisis would have been much deeper – by as much as 25% – because mortgage credit would not have been available to most qualified borrowers," he added.
The FHA Solvency Act of 2013 would provide the FHA with a number of the tools requested by Secretary Donovan in the U.S. Department of Housing and Urban Development’s 2012 Report to congress as well as in his testimony before the committee.
This bill would better assist the FHA to hold lenders accountable for fraud or inappropriate loans, as well as require annual reviews of loan performance and premium levels to ensure that pricing and underwriting standards are appropriate.
"Many of these reforms include priorities from our colleagues on the committee, and I am eager to work with them to return the FHA to a strong, self-sustaining insurance program that can remain a viable option for future homeowners," said Crapo.
A composed FHA Commissioner Carol Galante addressed the accomplishments of the FHA thus far, stating that improved risk management and replenishment of the capital reserve account remain the current goal.
The latest data shows that the fund is continuing its positive trajectory, while the percentage of seriously delinquent loans dropped 15% year-over-year in June. "We know our work is not done and these encouraging trends can be accelerated," said Galante.
There are several areas where additional conversations with members of Congress will be necessary, Galante acknowledged. We remain committed to continuously improving our stewardship of the fund, she said.
Galante noted that the FHA would benefit from additional changes to provide operation tools to the fund.
The commissioner mentioned the aging infrastructure of the FHA, which is operating on 1970s technology. The ease of doing business needs to be brought up to 21st century standards, said Galante. We need much better internal risk analysis, she added.
Galante also noted that several developments have helped the agency lean more toward solvency. Those factors include home price appreciation, which was significantly more than was estimated, and rising interest rates — both of which have lifted the FHA's outlook this year