WASHINGTON--(BUSINESS WIRE)--Citizens Against Government Waste (CAGW) today criticized the Federal Housing Administration (FHA) for aggressively lowering interest rates and failing to adequately carry out its mission. On January 26, 2015, FHA lowered mortgage interest rates by 50 basis points. On top of the agency’s loose underwriting standards and exceedingly high loan limits, the lower rates will add to the pressure on the FHA to reach its statutory capitalization requirements and put taxpayers at greater risk.
In testimony today before the House Financial Services Committee, Housing and Urban Development (HUD) Secretary Julian Castro cited FHA’s history of serving the interests of “folks of modest means.” Yet FHA covers mortgages of up to $625,500 for so-called “high cost” areas, which means that borrowers could use FHA-backed loans to purchase million-dollar homes.
“It is ironic that on the same day Secretary Castro testified about how the FHA is doing such a great job, the agency was once again included on the Government Accountability Office’s High Risk List due to the agency’s ‘significant financial difficulties,’” said CAGW President Tom Schatz. “The secretary struggled to deliver basic information about the FHA trillion-dollar loan portfolio when asked by members of the committee, and several times shied away from verbally confirming the well-established fact that taxpayers are the explicit backers of its loan portfolio. In its six years in office, the Obama administration has failed to unwind government involvement in Fannie Mae and Freddie Mac, the two housing government-sponsored enterprises (GSEs) whose risky business practices dragged the housing market and ultimately the whole economy into a deep recession. The GSEs have been under federal conservatorship since September, 2008 and were only implicitly backed by the taxpayers at the time of their implosion. Nonetheless, the administration continues to expand risk at FHA, which is explicitly backed by the taxpayers.”
The GAO report noted that “FHA’s Mutual Mortgage Insurance (MMI) Fund has been out of compliance with its statutory 2-percent capital requirement since fiscal year 2009. Additionally, a weakening in the projected performance of FHA-insured mortgages led to FHA receiving $1.68 billion from the Treasury at the end of fiscal year 2013, to ensure that the MMI Fund had sufficient funds to pay for all expected future losses on existing insurance obligations.”
“Congress and the administration should be working tirelessly to get the federal government out of the mortgage business, starting with bringing FHA loan limits down dramatically and requiring the agency to price its loans based upon actual risk. The agency has already come hat in hand to taxpayers to cover its losses and even under the agency’s rosiest economic predictions, it won’t meet the 2 percent statutory capital requirements until 2016. FHA should not be diving into deeper into the shallow end of the mortgage market head first, taking taxpayers with it. Lowering interest rates moves the FHA in the wrong direction, puts the 2016 deadline in jeopardy, and places taxpayers in an even more tenuous position,” concluded Schatz.
Citizens Against Government Waste is the nation’s largest nonpartisan, nonprofit organization dedicated to eliminating waste, fraud, abuse, and mismanagement in government.