Press Room
News Releases
Bond Hearing Statement on FHA's Role in Addressing the Housing Crisis
| Print This: |
April 2, 2009
Good morning, Madam Chair. Thank you for calling this critically important hearing on the Department Of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA) role in addressing the mortgage crisis. I welcome all of the witnesses today and look forward to hearing your testimony.
Before commenting on FHA, let me congratulate the new Secretary of HUD, Shaun Donovan, on his appointment and willingness to take on a very challenging job during a very challenging time. I thank Secretary Donovan for attending this hearing and lending us the benefit of his wisdom. We have spoken on several occasions and I have been very impressed by his past housing experience and his obvious commitment to making HUD an effective agency. I also recognize Mr. Kenneth Donohue, the HUD IG. Ken has done a great job providing the Department and the Congress with independent and objective analyses and oversight of HUD’s responsibilities.
The health and solvency of FHA is at high risk. There are very troubling signs. FHA default rates are at its highest rate in several years. FHA’s economic value had fallen by almost 40 percent over the past year. FHA approval of new lenders has increased by 525 percent over the past two years and there are signs that former subprime lenders and brokers have been approved to conduct FHA business. Fraudulent activity in the mortgage industry is on the rise exposing FHA to more risk. In addition, FHA has seen a significant increase in foreclosures, which endanger the stability of communities and neighboring homes. The rise in FHA defaults and foreclosures, especially in areas already victimized by subprime lending, threaten to make a bad problem worse.
Mr. Secretary, you inherited an agency that has had long-standing challenges in meeting its mission. I am confident that you are up for the task in turning the agency around and I appreciate your recognition and willingness to tackle FHA’s management and operational problems. But despite your skills and leadership, the Congress and the Administration must not make your job harder by placing more risk on FHA until the problems are fixed or the agency will crash.
Americans have a message for Congress and the Administration – the taxpayer credit card is maxed out. The alarm is sounded – if Congress and the Administration place more risk on FHA before the problems are solved this powder keg will explode and taxpayers will be on the hook.
FHA has suffered from longstanding management and oversight problems. In addition, past and current Administrations and Congress have contributed to FHA’s woes by making changes to FHA so that it could refinance existing subprime mortgages. For example, the Bush Administration created a new program called “FHA Secure” to allow the agency to refinance subprime borrowers who were late on a few payments. While the program served a fraction of troubled subprime borrowers, the FHA terminated the program because of its negative financial impact on its insurance fund.
In addition, Congress created the FHA “Hope for Homeowners” program as part of last summer’s enacted Housing and Economic Recovery Act of 2008. Out of concern about the increased risk to FHA, I voted against the bill. While this $300 billion program has not served as many borrowers as anticipated, the Obama Administration and some in Congress are advocating changes that would relax the standards of the program to increase participation. In addition, there are efforts to re-establish “no down-payment” programs that significantly contributed to FHA’s troubles. The seller no down-payment program defaulted at a rate higher than subprime loans. As a result, I also strongly oppose these efforts.
I will work with Secretary Donovan to ensure that he has the needed resources to carry out FHA’s mission. It is vitally important that FHA hire the necessary staff, provide consistent and comprehensive training, and ensure that it installs the necessary safeguards to minimize fraud and abuse. FHA must also provide homebuyers with clear and comprehensive requirements to help insure the success of homeownership.
Thank you, Madam Chair.