WASHINGTON, D.C. – Following the announcement by the U.S. Department of Housing and Urban Development (HUD) that the Federal Housing Administration’s (FHA) cash reserves will drop below the minimum level set by Congress, U.S. Senator Kit Bond reissued his critical warning and solutions.

 

            “For months, I and others have repeatedly warned that FHA is a powder keg that will explode, so today’s news is no surprise,” said Bond. “Unfortunately this drop is just the tip of the iceberg as job losses continue to mount and more and more homeowners are expected to lose value in their homes. It’s critical we address FHA’s problems now because the taxpayer credit card is maxed out and a viable FHA is necessary for our economic and housing recovery.”

Unfortunately, long-standing management and resource challenges and a substantial growth in risky lending put FHA at tremendous risk.  In addition to these pressures, the U.S. Congress and the Obama Administration continue to pile on more risk.  Over the last several months, Bond warned that with rising mortgage fraud, deteriorating economic conditions, and increasing demands, the FHA’s problems may require another taxpayer-funded bailout. In response to these problems, Bond also highlighted several steps to resolve FHA’s state of quandary which include:

 

(1)   strengthening FHA management and oversight,

 

(2)   increasing anti-fraud efforts, and

 

(3)   fixing the economy and credit crisis.

 

Bond emphasized that it is critical that both the Administration and the Congress follow these steps, stop placing more risk and demands on the FHA, and provide the tools to address its challenges.  He also noted that the Transportation, Housing and Urban Development (THUD) appropriations bill that passed the Senate yesterday includes some of the necessary tools to help address some of FHA’s current problems. 

 

 “HUD Secretary Shaun Donovan and FHA Commissioner David Stevens have acknowledged this is a serious problem and announced some step to address FHA’s problems,” said Bond. “I fear these steps are not enough and more must be done to ensure FHA’s viability and protect the taxpayer.  The Department must take steps to ensure that borrowers having enough skin in the game.  Having an adequate level of skin in the game is probably the most important factor in loan performance and risk.”

 

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