House Committee Examines FHA's Financial Viability
U.S. Department of Housing & Urban Development (HUD) Secretary Shaun Donovan took part in a House Financial Services Committee hearing titled "Perspectives on the Health of the FHA Single-Family Insurance Fund," where Donovan was questioned about the well-being and current financial state of the Federal Housing Administration (FHA). "As FHA offers access to homeownership for borrowers, this Administration has made substantial efforts to ensure that it is extending credit to qualified borrowers who will have the ability to sustain this opportunity over time. Those efforts are bearing fruit," said Donovan in his testimony. "For all of FY 2011, the credit quality of borrowers utilizing FHA insurance set a new record high, with the average score across all borrowers breaking 700 for the first time ever. FHA saw a three-year rise in credit quality of new FHA-insured borrowers, and throughout all four quarters of FY 2011, more than one-third of FHA borrowers possessed credit scores at or above 720. By contrast, in the second quarter of 2008, the share of such A-grade borrowers was under 10 percent." Also participating in the "Perspectives on the Health of the FHA Single-Family Insurance Fund" hearing were a number of industry experts including Mathew Scire, director of financial markets and community investment for the U.S. Government Accountability Office (GAO); Dr. Andrew Caplin, professor of economics, Department of Economics for New York University; Henry V. Cunningham Jr., CMB, president of Cunningham and Company, on behalf of the Mortgage Bankers Association (MBA); Patrick Sinks, president and chief operating officer of Mortgage Guaranty Insurance Corporation (MGIC), on behalf of the Mortgage Insurance Companies of America (MICA); Moe Veissi, president of the National Association of Realtors (NAR); and Sarah Rosen Wartell, EVP at the Center for American Progress. "I think it is fair to say that the housing recovery, although fragile, would not have taken place without FHA," said Cunningham in defense of the FHA. "However, FHA's single family programs haven't been immune from the historic disruptions that have roiled our markets. And that's what brings us here today. The Actuarial Report is sobering and calls for a fresh look at FHA's fiscal health and the role it plays in our housing finance system." In mid-November, HUD released its "Annual Report to Congress Regarding the Financial Status of the FHA Mutual Mortgage Insurance Fund: Fiscal Year 2011" on the financial status of the FHA's Mutual Mortgage Insurance (MMI) Fund, the backbone of the FHA single-family and reverse mortgage programs. In reporting on findings of the annual independent actuarial study, HUD indicates that, in the midst of continued weakness in housing markets across the county, the MMI Fund capital ratio remains positive this year at 0.24 percent. Donovan was also questioned about conforming loan limits as members of the House Financial Services Committee were split on the FHA's recent raise in conforming loan limits. "Of course, the $16,000 loan limit does not paint the entire picture of FHA’s target demographic. To better understand this, we should look at how the program was used by borrowers," said Veissi in his testimony. "In its third annual report to Congress for 1936, FHA’s statistics showed that most of the homes insured were valued in the $3,000 to $6,000 range and the average single-family home value for an insured mortgage was $5,497, more or less reflecting the average costs of homes at the time. Only 2.8 percent of FHA-insured homes were valued below $2,000, and only 2.1 percent above $15,000. This is strong evidence that FHA was not originally targeted to any income group, but rather was intended to help families across the spectrum finance their purchase homes."