Expert Responds to Today’s FHA Hearing in House Financial Services Committee
By Mel Fabrikant Wednesday, February 06, 2013, 03:22 PM EST
Expert Responds to Today’s House Financial Services Committee Hearing about the Financial Condition of the Federal Housing Administration James H. Carr, former Sr. VP at Fannie Mae Foundation, is Senior Policy Fellow for the Home Opportunity Initiative at The Opportunity Agenda Note: Mr. Carr is available for interviews Comments on Opening Statements at the hearing:
“Representation of the financial challenges facing FHA—that portray it as a reckless and irresponsible lender—misrepresent the reasons for the agency’s current troubles.
“The causes of FHA’s immediate financial problems are due largely to loans originated at the height of the housing crisis (2007-2009) while FHA was increasing its book of business by more than 10-fold to compensate for the collapse of the private market. The Committee’s own hearing letter states the exceptional role FHA was required to play.
“Rather than criticize FHA, the agency and its staff should be complimented for helping to stabilize the housing and financial markets during a period exceptional stress. After all, almost every major private mortgage lender and insurer failed, was bailed out or was purchased starting as far back as 2007.
“Even today, FHA does not face a current deficit; rather it faces a prospective deficit.
“FHA’s most recent two year books of business are among the strongest in the agency’s history. In fact, many of the current fee increases greatly exceed the fees needed to cover expected losses for current borrowers. Rather, those fee hikes are needed to help bail out existing projected losses.” Additional points:
“The suggestion that a loan has ‘a’ subprime feature (low downpayment or low credit score) that somehow directly translates into high default, ignores the reality of the multiple factors that contribute to default. While it’s true that credit scores and downpayments are important to loan performance, loan type, repayment terms, full documentation of borrower income and qualifications and other underwriting criteria are more important.
“The idea that FHA needs to stop making bad loans ignores the performance of the agency’s lending for the past two years and the fact that recent loans are projected not only to cover fully their losses but also contribute significantly to paying off losses sustained by the 2007-2009 books of business.
“Proposals to reduce the amount of FHA’s guarantee is a thoughtful recommendation that should be considered, but given the agency’s nearly 80 year successful performance, it’s not clear the 100% guarantee is a problem.
“The recommendation that FHA change is accounting practices to be consistent with those used by the GSEs is interesting and thoughtful—although the GSEs are a very different business model.” About James Carr:
James H. Carr, Senior Policy Fellow for the Home Opportunity Initiative at The Opportunity Agenda, has a unique and rich depth of experience in economic policy, with a focus on the economy, foreclosure crisis, financial system regulatory reform, housing markets, and wealth disparities and economic mobility. He is the former Chief Operating Officer for the National Community Reinvestment Coalition and a visiting professor at Columbia University in New York and George Washington University in Washington, D.C. Mr. Carr has served as Senior Vice President for Financial Innovation, Planning and Research for the Fannie Mae Foundation and Assistant Director for Tax Policy with the U.S. Senate Budget Committee.
About the Opportunity Agenda (www.opportunityagenda.org)
The Opportunity Agenda was founded in 2004 with the mission of building the national will to expand opportunity in America. Focused on moving hearts, minds and policy over time, the organization works with social justice groups, leaders, and movements to advance solutions that expand opportunity for everyone. Through active partnerships, The Opportunity Agenda synthesizes and translates research on barriers to opportunity and corresponding solutions; uses communications and media to understand and influence public opinion; and identifies and advocates for policies that improve people’s lives.