- Senate Subcommittee Hearing on FHA Role in Housing Market
- May 20, 2010
- Law Firm: Alston Bird LLP - Atlanta Office
Earlier today, the Senate Appropriations Committee, Subcommittee on Transportation, Housing and Urban Development, and Related Agencies held a hearing entitled “Review and oversight of the Federal Housing Administration and its role in the housing market”. The only witness testifying before the Subcommittee was David H. Stevens, Commissioner, Federal Housing Administration, U.S. Department of Housing and Urban Development.
Chairwoman Patty Murray (D-WA) opened the hearing by noting that, similar to its role during the great depression, the "FHA has stepped forward to help provide liquidity and restore stability to the housing market." She pointed out that the FHA's share of the home sales market has increased from 3% in 2007 to 30% today reflecting FHA's importance to the housing market. Senator Murray also recounted the various management challenges facing FHA, which make fulfilling its important role more difficult.
Ranking Member Kit Bond (R-MO) likened the FHA's financial solvency to powder keg, that "could explode, leaving the taxpayers on the hook for another bailout." Senator Bond applauded Mr. Stevens for "moving FHA in the right direction" to shore up FHA's Mutual Mortgage Insurance Fund.
Mr. Stevens explained that in current economic climate, "FHA has stepped up to fulfill its countercyclical role ¿ to temporarily provide necessary liquidity while also working to bring private capital back to credit markets." Stevens cautioned that while the FHA's role is increased presently, it is important for FHA not to disturb fragile private sector markets and that "the changes and legislative requests that we have announced are crafted to ensure FHA steps back to facilitate the return of the private sector as soon as possible."
Stevens emphasized the reforms instituted by the current administration, noting "[i]n addition to steeply increasing lender enforcement, we’ve strengthened credit and risk controls -- toughening requirements on our Streamlined Refinance program, made several improvements to the appraisal process, and published a final rule in the Federal Register on April 20 to increase net worth requirements for all FHA lenders." Mr. Steven attempted to allay fears that FHA is undercapitalized, saying "the independent actuary concluded that FHA’s reserves will remain positive under all but the most catastrophic economic scenarios. Further, while its Capital Reserve Account has decreased too quickly, FHA is not 'the next subprime' as some have suggested."