Housing agency's improving finances get mixed reviews

The Federal Housing Administration's improving financial picture got mixed reviews Friday on Capitol Hill. 

The agency's projected deficit fell to $1.3 billion for 2013, dropping 92 percent from the much larger expected shortfall of $16.3 billion a year ago, according to an annual independent financial review of the agency.

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Despite the improvement, House Republicans remained skeptical about the prospects for the FHA's recovery, especially after the 79-year-old agency needed its first-ever cash infusion of $1.7 billion to balance its books at the end of the fiscal year.

They insist their legislation, produced in July by the House Financial Services Committee, will put the agency, which has a $1.1 trillion portfolio of loans it guarantees, back on solid financial footing. 

House Financial Services Committee Chairman Jeb Hensarling (R-Texas) said the report sets up the prospect that the FHA could need more taxpayer money next year.

"It’s been barely two months since hardworking taxpayers were forced to bail out the FHA with $1.7 billion and we’re already faced with the prospect of another bailout for the FHA next year," he said.

He said his panel's bill would shift most of the risk to the private sector from taxpayers and that the "time for FHA reform is now. 

"We cannot and should not wait until the next taxpayer bailout."

The Senate Banking Committee has held a series of hearings over the past couple of months with the aim of producing a bipartisan bill sometime soon, possibly early next year.

The plan is, eventually, to bring the House and Senate together to hammer out a compromise to overhaul the housing finance system.

Rep. Randy Neugebauer (R-Texas), a co-author of the House bill and chairman of the Financial Services subcommittee on Housing and Insurance, said despite the improvement, it is clear the FHA needs legislative help.

"There’s only so long that you can keep plugging holes in a sinking ship," he said.

"If we want FHA to continue to help first-time and low-income borrowers achieve their dreams of homeownership, then we need to go back to the blueprint and repair the structural flaws."

But some proponents of an overhaul argue that Congress must tread carefully in making changes to the FHA, which expanded its role in the housing market — and thus increased its risk — during the financial crisis as private investment evaporated.

"In light of this report, NAR believes that Congress should not dramatically change the FHA or redefine its purpose," said Steve Brown, president of the National Association of Realtors.

"These promising gains are the result of strong leadership and a commitment to policies that balance risk with FHA’s mission of making mortgage insurance available to qualified homebuyers," he said. 

The report also found that the FHA's Mutual Mortgage Insurance (MMI) Fund will return to the required 2 percent ratio in 2015, two years sooner than projected last year. 

Meanwhile, FHA has more than $48 billion on hand to pay expected claims.

“As the value of the Fund continues to improve, FHA will make every effort to maintain this positive momentum while simultaneously ensuring qualified borrowers in underserved markets can responsibly access mortgage credit,” said FHA Commissioner Carol Galante. 

“Throughout the economic crisis, FHA continued to fulfill its mission of stabilizing the housing market and providing responsible access to mortgage credit. The fact that the economy and the housing market are on the road to recovery is in part due to FHA’s efforts.”

The report examines the FHA's net worth and predicts how well the loans it guarantees will perform, as well as determines how much money will be needed to cover any potential losses.

"What is clear from the independent actuarial report is that the aggressive steps we have taken have made FHA stronger and put it on a sustainable path to fulfill its dual mission of supporting access to homeownership for underserved and low-wealth borrowers as well as supporting and stabilizing the housing market,” said Housing Secretary Shaun Donovan.

But there was plenty of praise for the agency, which was hit hard by bad mortgages it backed between 2007 and 2009, as as well as a reverse mortgage program, which drained its coffers at a critical point in its recovery.

Loans made since then have been profitable and are a key driver in the FHA's recovery.

During the past year, Galante has made a series of changes designed to help the agency get out of its deep financial hole, including raising premiums and improving underwriting standards.

Besides those policy changes, the agency's finances were boosted by a housing market that improved at a faster-than-expected pace, including fewer defaults and foreclosures along with rising home prices. 

David Stevens, president and CEO of the Mortgage Bankers Association and former FHA head, said the report "shows clear improvement over last year" and is a sign that the reserve fund "is headed in the right direction and could soon be positive."

“The report indicates that the Fund’s improvement is attributable to a few important factors, most critically the continued focus to implement policy changes which have increased revenue and have led to improved loan performance, better risk management and better recovery rates," he said.

Rep. Maxine Waters (D-Calif.), ranking member of the House Financial Services Committee, said although the FHA "is not completely out of the woods, today’s numbers show crucial improvements in its solvency and stability." 

"FHA has exceeded all expectations, and I am optimistic this progress will put it on sound financial footing for the long-term," she said.

"A stable and solvent FHA will ensure we have a strong backstop in the unfortunate event of another housing downturn.”

The White House will make a separate determination next year about whether FHA will need more help next year.