FHA bailout adds to 'existential threat', Republican congressman claims

by Adam Smith30 Oct 2013

A Republican congressman has taken aim at the FHA bailout, saying it heaped money onto the national debt spurring an "existential threat".

Financial Services Committee Chairman Jeb Hensarling (R-TX) has told the FHA Bailout Hearing that the $1.7bn bailout of the FHA took place due to the agency "ignoring warnings about its solvency, failing to use its existing tools to price insurance appropriately, and failing to minimize losses".

"Barely a week ago the Congressional Budget Office delivered more bad news, reporting that FHA has consistently misstated its projected recovery. Specifically the CBO has said mortgages insured by FHA over the past two decades have had a net cost of $15 billion, even though initial estimates from FHA suggested $45 billion in profits. That’s a remarkable $60 billion swing in the wrong direction. Another rosy scenario dashed at an agency that regrettably has a history of such," Hensarling said.

Hensarling blamed the FHA for adding to the national debt, which he dubbed "the greatest existential threat" facing the country, and argued for the Republican-backed PATH Act.

"The PATH Act will achieve needed objectives for the FHA. It will put FHA on sound financial footing and keep it there. It clearly defines FHA's mission to ensure that the agency is serving first-time homebuyers and low-to-moderate-income borrowers. The PATH Act shifts risk away from the taxpayers and into the private sector by reducing FHA's footprint and making sure the agency is complementing the private sector, not competing with it. It ensures that FHA runs its single-family insurance fund according to the basic tenets of mortgage insurance. And finally, the PATH Act mandates the insurance of the 30-year fixed mortgage and retains FHA’s countercyclical role.," he said.

But the National Association of Realtors last week slammed the proposed plan, with NAR chief economist Lawrence Yun calling it "highly ideological rather than practical".

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