Federal Housing Finance Agency Director Mel Watt will appear Tuesday morning before the House Financial Services Committee at a hearing entitled “Sustainable Housing Finance.”

The purpose of this hearing is to receive an update from the FHFA on measures FHFA has taken as conservator of Fannie Mae and Freddie Mac, the FHFA’s current Strategic Plan for the GSEs, and the current financial condition of Fannie Mae, Freddie Mac and and the Federal Home Loan Banks.

Watt will likely face a tough grilling from the new Congress on whether adequate steps are being taken to encourage additional private capital in this market and what additional actions FHFA has taken as regulator of Fannie Mae, Freddie Mac and the FHLBs.

He will also likely face questions about the wisdom of President Obama’s move to cut the FHA mortgage insurance premiums.

House Financial Services Committee Chairman Jeb Hensarling, R-Texas, said he thinks it is irresponsible to lower FHA mortgage insurance premiums.

“Such an action by the President would be a grave mistake that will end up hurting hardworking taxpayers.  It was just two years ago that taxpayers had to bail out the FHA to the tune of $1.7 billion, and just two months ago an audit revealed that FHA is still in violation of federal law because it does not maintain sufficient capital reserves,” Hensarling said after the early January announcement. “Lowering premiums now would only put the FHA further behind. 

“A fiscally sound FHA, with a clearly defined mission, ensures homeownership opportunities for creditworthy first-time homebuyers and low-income families.  Any effort to lower FHA premiums would be counterproductive to achieving these goals and would place the U.S. taxpayer at greater risk,” he said.

“The American people want an end to the destructive cycle of boom, bust and bailout that poor decisions in Washington produce.  If President Obama follows through on today’s pledge, he will be increasing the likelihood that taxpayers will have to foot the bill for yet another bailout,” he said. “The Financial Services Committee is already planning to bring (HUD) Secretary Castro before our members to question him about the poor financial condition of FHA, which President Obama is apparently about to make even worse.”

Hensarling said the move would also push the housing market closer to another bust, even as it struggles to recover.

Congresswoman Maxine Waters, D-Calif. Ranking Member of the Financial Services Committee, however praised the action as critical for the nation’s homebuyers.

"Although Republicans will roundly criticize this move, it’s important to remember that FHA is far from bankrupt, holding approximately $40 billion in reserves and continuing to generate revenue," Waters said.

The Credit Union National Association wants the committee to ask Watt about proposed regulatory changes to the Federal Home Loan Bank membership rules. “These proposed changes would represent a fundamental change to the FHLB system, and CUNA questions the need for any change in FHLB membership for depository institutions at this time. We are particularly concerned that the proposal would apply membership eligibility rules on an ongoing basis, creating uncertainty for Federal Home Loan Bank members and establishing different treatment for similarly sized credit unions and banks,” CUNA said in a statement to the committee members. “We urge the Committee to use tomorrow’s hearing as an opportunity to encourage FHFA to withdraw or substantially revise the proposal, including correcting the proposal’s disparate treatment of similarly sized banks and credit unions.”