Republican legislators are seeking reform of the struggling Federal Housing Administration.
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The FHA is facing potential losses in the billions, and the mortgage insurer is expected to require a Treasury subsidy for the first time in the agency’s history. The losses are primarily due to defaults on loans the FHA insured during the housing crisis.
House Financial Services Committee Chairman Jeb Hensarling, R-Texas, at a hearing Wednesday accused the FHA of straying from its original mission. Hensarling said the FHA now controls the majority of the mortgage insurance market, and does not just focus on low- and moderate-income Americans as intended.
“It provides mortgage insurance for expensive homes valued as high as $729,000,” he said.
In addition, Hensarling criticized the FHA’s practices when providing loans.
“Arguably the FHA has now become the largest subprime lender all with the blessings of the administration,” he said.
Republicans are looking to trim the reach of the FHA as part of a broader effort to overhaul the government’s role in housing.
The FHA could fall short by as much as $16.3 billion of the amount it is required to have to cover projected future losses. The agency has taken some steps toward improving its finances through raising annual premiums borrowers pay to insure their mortgages, increased down payment requirements and premiums for larger loans, and increased examination of borrower applications with weak credit or high debt.
Democrats have expressed concern over the FHA’s finances, but say they also want to ensure changes to the agency won’t make it more difficult for some Americans to obtain mortgages.
U.S. Sues S&P
The U.S. Justice Department launched a civil lawsuit against Standard & Poor’s Ratings Services early last week for its ratings of mortgage-backed securities leading up to the financial crisis.
The government has been investigating S&P for about three years to determine whether S&P weakened or ignored standards for rating collateralized debt obligations that included bundled subprime mortgages.
The suit alleges that S&P “falsely represented that its credit ratings of RMBS and CDO tranches were objective, independent, uninfluenced by any conflicts of interest that might compromise S&P’s analytical judgment, and represented S&P’s true current opinion regarding the credit risks” of the securities.
The Wall Street Journal reported the government is seeking penalties of more than $1 billion.
S&P said in a statement last Monday that the government suit is “entirely without factual or legal merit.” In addition, S&P said the government is seeking to punish the agency for “failing to predict” the financial crisis.
John Goodpaster can be reached at W.J. Bradley Mortgage Capital, LLC
Office: 949-729-9200 EX. 485
Cell: 949-291-4201
Fax: 949-272-3753