Republicans on the House Financial Services Committee are calling for hearings on the financial health of the Federal Housing Administration’s reserve fund, which recently reported a drop in its capital ratio to 0.57%, well below the amount required by Congress. Here’s more from National Mortgage News:
Citing FHA’s deteriorating financial position, Reps. Spencer Bachus (Ala.) and Shelley Capito (W. Va.) are urging committee chairman Barney Frank, D-Mass., to schedule a hearing as soon as possible. “If home prices do not recover, the economic value of the Mutual Mortgage Insurance Fund could fall below zero. We are concerned that such a drop could force HUD to request an appropriation from Congress,” the two Republican lawmakers say in a letter. FHA officials maintain that they have taken corrective actions and the insurance fund is in no imminent danger of running out of cash. If necessary, the agency could raise the FHA upfront premium to keep the fund in the black. However, Reps. Bachus and Capito also have concerns about FHA’s technological and management capacity. “It is incumbent upon our committee to get prompt answers to many of the questions surrounding FHA’s risk management practices and finances,” the Republicans say in a letter to Rep. Frank.
FHA has been critical to reviving the housing market. Since the loan limit was raised to nearly $730,000 in Orange County, for example, FHA loans have accounted for roughly 25% of home purchase loans here.
Speaking of FHA, I also saw a story on Bloomberg by my former Register colleague John Gittelsohn:
The Federal Housing Administration, the agency that insures home purchases made with down payments as small as 3.5 percent, may create another lending crisis, Toll Brothers Inc. Chief Executive Officer Robert Toll said.
“Yesterday’s subprime is today’s FHA,” Toll said today at a New York conference for builders sponsored by UBS AG. “It’s a definite train wreck and the flag will go up in the next couple of months: Bail us out. Give us more money.” Toll Brothers is the largest U.S. luxury homes builder.
Although FHA may not need a bailout. FHA cannot continue being the main go to lender when your LTV is over 80%, and hope to not implode.
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