FHA reserves shortfall prompts reaction from Congress

This story appeared in Bank Digest.

Reports that the Federal Housing Administration will require a $1.7 billion bailout this year prompted immediate reaction on the hill. Sen. Mike Crapo (R-Idaho), Ranking Member of the Senate Banking, Housing and Urban Affairs Committee, responded that such a request was "unacceptable," and that this failure of the FHA indicated the need for "broader housing finance reform." In July of this year, the Senate Banking Committee passed the FHA Solvency Act of 2013 (S. 1376), which would provide FHA with strengthened underwriting standards, enhanced lender accountability measures, and reforms to the FHA's reverse mortgage program. The measure has not come before the full senate.

House Financial Services Committee Chairman Jeb Hensarling (R-Texas) stated that the FHA is "clearly headed toward financial disaster" and that Congress needs to enact sustainable housing finance reform, such as the Protecting American Taxpayers and Homeowners (PATH) Act of 2013 (H.R. 2767), which is currently in committee. Rep. Maxine Waters (D-Calif), Ranking Member of the Committee on Financial Services, suggested that the PATH Act does not address FHA solvency, but rather undercuts "the entirety of the program." She also maintained that these funds are only required because FHA is "bound by law to hold the revenue necessary to pay any potential claims over the next 30 years, without taking into account future business."