WASHINGTON, D.C. – U.S. Senator Kit Bond (R-MO), Ranking Member of the Senate Transportation, Housing and Urban Development, and Related Agencies Appropriations Subcommittee, today again warned HUD Secretary Shaun Donovan that a mix of economic and internal problems, vulnerability to fraud and increasing political pressures make the Federal Housing Administration (FHA) a powder keg ready to explode at a massive cost to American taxpayers.

 

“If changes do not occur, the FHA powder keg will explode causing harm to taxpayers, communities, the economy and homeowners,” Bond said. “And in the current tenuous economic environment, that’s a huge risk to be taking.”

 

During today’s Senate Appropriations Subcommittee hearing on the Administration’s proposed Fiscal Year 2010 budget for the Department of Housing and Urban Development (HUD), Bond warned that the ability of the FHA to sustain the current economic crisis may be at great risk – that while current budget projections are already discouraging, the numbers still may not adequately reflect the reality of the ongoing problems in the housing sector and the greater economy.

 

Bond pointed out that our Nation continues to lose hundreds of thousands of jobs every month and the mortgage crisis has spread from subprime to prime or traditional mortgages. Recent data indicates that prime-mortgage foreclosures are accelerating in states where unemployment is rising. This troubling data indicates that the economic problems that began in the housing market and caused the recession that led to massive job losses have now come full-circle and are again negatively affecting the housing sector. The Senator stressed that the FHA is not immune to these increasing threats.

 

“These challenges factor into my view that the health and solvency of the FHA remains at high risk,” Bond said.

 

The Administration’s budget estimates that the FHA’s single-family insurance program will not require a taxpayer bailout and will generate nearly $1.7 billion in revenue. Yet, at a hearing in April, HUD Inspector General Ken Donahue responded to a question by Senator Bond on the need for a possible taxpayer bailout by saying “based on what I’ve seen, the numbers are going in the wrong direction.” In addition, the non-partisan Congressional Budget Office (CBO) projects a zero credit subsidy rate for the FHA program which means the CBO estimates the FHA will neither make nor lose money. 

 

The FHA continues to exhibit worrisome signs as default rates have risen to the highest rate in several years, capital reserves are declining and foreclosures are rising. Bond pointed out that as the government takes over foreclosed properties it often leads to instability in neighboring homes and communities. Furthermore, the FHA remains extremely vulnerable to fraud, a problem that has long existed and been well documented by the HUD Inspector General

 

“You inherited FHA’s problems and to your credit, you have acknowledged and have taken steps to address them,” Bond told Donovan. “But despite your best efforts, I fear the agency may be swimming upstream.”

 

Senator Bond also raised questions about HUD’s proposal to create a new program, called Choice Neighborhoods, to address distressed and blighted neighborhoods that would build off the success of the so-called HOPE VI public housing program.  Bond championed the creation of the HOPE VI program that got its start in St. Louis several years ago.

 

“We have seen the program revitalize communities and families of the worst public housing projects.  Communities that were once magnets for crime and poverty are now catalysts for development.”  Bond said.

 

Bond also reiterated his support for HUD’s Veteran Affairs Supportive Housing (HUD-VASH) voucher program that assists homeless veterans in obtaining permanent supportive housing and questioned the lack of funding in the Administration’s budget request for such a vital program. Senators Bond and Murray (D-WA) led the effort to provide funding for the HUD-VASH program in the FY 2009 appropriations act and Secretary Donovan committed today to working with both Senators to address this critical need.

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