Connect with us

News

Shelby Says FHA Should Face Facts

Brandon Moseley

Published

on

By Brandon Moseley
Alabama Political Reporter

U.S. Senator Richard Shelby (R) from Alabama said that “Hard choices lie ahead for this program,” referring to the FHA. Sen. Shelby released a written statement with remarks he made at a hearing concerning oversight of the Federal Housing Administration and the U.S. Department of Housing and Urban Development’s response to fiscal challenges.

Sen. Shelby said, “Just days after the President’s re-election, the FHA released its 2012 Actuarial report, which revealed that the economic value of the FHA Fund has fallen to negative $16 billion. That means the Fund’s capital reserve ratio now stands at negative 1.44%. This news is obviously very disturbing and frustrating for those of us who have long been concerned about the health of the FHA.”

Sen. Shelby said, “The FHA unwisely guaranteed millions of risky mortgages with low down payments to borrowers with poor credit scores. These mortgages have resulted in billions of losses to the FHA. The FHA has made matters worse by failing to come to grips with the magnitude of its problems. Back in 2007, as the FHA’s poor financial position was becoming clear, I urged the FHA to devise a credible plan to improve its finances.”

Sen Shelby said, “Unfortunately, for the past five years, the FHA’s leadership has understated their problems and sought to kick the can down the road. This is now the fourth year in a row that the FHA Fund has been below its statutory minimum capital levels. Yet, each year, we are told that this is a temporary dip and that within a few years everything will be fine.”

Sen. Shelby said that Secretary Donovan told the Senate in 2009 that the drop in the capital ratio was temporary and the program would return above two percent expected within the next two or three years. Shelby said, “We now know that this forecast was way off the mark.” “In 2011, HUD still had its projection showing the FHA’s capital ratio reaching 2% in 2014. Now, despite all of these reassurances, the actuarial report projects that the FHA Fund has a capital reserve ratio of negative 1.44%.”

Shelby said that both Secretary Donovan and Acting FHA Commissioner Carol Galante have testified that the FHA Fund would ‘return to the congressionally mandated capital reserve ratio of 2 percent by 2015.’

Advertisement

Sen. Shelby said, “Needless to say, I am not nearly as optimistic about the future of the FHA. Moreover, the inability of FHA’s leadership to clearly recognize and address its problems is raising doubts about their credibility and willingness to properly manage FHA’s finances. It is time for FHA to face facts:

Advertisement

First, the capital reserve ratio of the FHA Fund is dangerously low and has shrunk nearly every year since 2006.

Second, the Fund’s capital ratios have been below FHA’s statutory obligations every year since 2008.

Third, every year since then, future growth in the capital ratio has underperformed in relation to FHA’s predictions.”

Shelby said that the shock produced by these latest projections will hopefully finally be a wake-up call for everyone. Shelby called for FHA leadership to shore up the value of the fund and said that, “Congress must consider reductions in permissible risk layering, further underwriting reforms, and a re-examination of premium structures.  It is time for serious reform of the FHA before it needs a taxpayer bailout, if it isn’t too late already.”

From 2001 thru 2007 housing prices rose exponentially. Credit was easy to get and more and more Americans were becoming home owners. Real estate agents told Americans that their home was their biggest investment and many swapped homes every five years or less. Home prices were growing faster than the economy or wages and inevitably the bubble burst in 2008. Millions of Americans saw the dream of home ownership turn into the nightmare of foreclosure. The U.S. Government thru FHA, the Veterans Administration, Freddie Mac, and Fannie Mae owns most of the mortgages in the country. The down economy means that millions of Americans are unemployed, underemployed, or have dropped out of the labor force meaning they can’t enter the housing market. This has dramatically slowed the housing market recovery. A possible second recession could be devastating for the struggling real estate and housing sector.

Senator Richard Shelby is the ranking Republican on the Senate Committee on Banking, Housing and Urban Affairs

Brandon Moseley is a senior reporter with six and a half years at Alabama Political Reporter. You can email him at [email protected] or follow him on Facebook.

Advertisement
Advertisement

Authors

Advertisement

The V Podcast

Facebook

.