Thursday, February 12, 2015

House Financial Services Committee debates FHA premiums with Secretary Castro


by Rebekah King, National Housing Conference

Yesterday, HUD Secretary Julian Castro testified before the House Financial Services Committee on “The Future of Housing in America: Oversight of the Federal Housing Administration.” The highly partisan hearing consisted of Republican attacks on the Federal Housing Administration (FHA) and the recent decision to lower premiums, a strong defense by Democrats, with Secretary Castro caught in the middle. Republicans repeatedly raised their concern about the lower premiums because of FHA’s low capital reserve ratio. Secretary Castro responded with FHA’s recent and continuing improvements: $46 billion in cash reserves, stronger underwriting standards, its most profitable years ever in 2013 and 2014, along with significant other improvements. He also discussed how FHA premiums remain above pre-crisis levels, even after the 50 basis point reduction.

None of these facts gained much traction in the hearing. The conversation focused on actions already taken and past decisions. The discussion generally did not look forward or consider other steps that could be taken to strengthen FHA. The committee also did not discuss possible policy solutions to serve moderate income renters who are able and want to become homebuyers but are locked out of the market.

Several members, including Chairman Hensarling (R-Texas) and Rep. Garrett (R-N.J.), ignored FHA’s critical role in supporting homeownership and stabilizing housing markets and instead attempted to implicate FHA lending as predatory and as contributing to the housing crash. In fact, FHA provides 30 year fixed rate mortgages, which are the safest type of mortgage lending product. It has never offered exotic or risky flavors or variations of mortgages. FHA plays a critical role of providing access to mortgage credit for responsible first-time homebuyers and households of color who cannot access a sound mortgage in the private market. Furthermore, new evidence adds to a growing body of research demonstrating that low-income homeownership lending did not cause the housing crash. While the overall number of new mortgages grew in the years leading up to the crisis, the fraction of mortgages going to different income groups did not change. Borrowers in the middle and top income brackets contributed most significantly to the increase in mortgage defaults that occurred after 2007. This fact, sadly, did not enter the conversation at the hearing.

The committee’s attention to housing’s important role is welcome, but as Secretary Castro returns in a few weeks to discuss the president’s budget request for HUD, we hope the conversation becomes more constructive and substantive. NHC is hosting a webinar discussion of the president’s budget on Feb. 19 through its Annual Budget Forum, and we encourage advocates and practitioners to participate.

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