WASHINGTON--(BUSINESS WIRE)--Today, Citizens Against Government Waste (CAGW) named Housing and Urban Development (HUD) Secretary Julián Castro its February Porker of the Month for putting the taxpayers at risk for yet another housing-related bailout. On February 11, 2015, Secretary Castro testified before the House Financial Services Committee at an oversight hearing on the Federal Housing Administration (FHA). The hearing was convened two weeks after FHA, in response to President Obama’s February 5 directive, reduced its mortgage insurance premiums by 50 basis points, from 1.35 percent to 0.85 percent.
The FHA runs a $1 trillion mortgage insurance program that traditionally provided coverage for low and middle-income first-time homebuyers. The agency is the largest single provider of mortgage insurance and has a 100 percent taxpayer-backed repayment guarantee should the homeowner default. In 2008, Congress “temporarily” increased loan limits for FHA insurance from $360,000 to $625,000 (where it remains today), which in turn raised the eligible income from about $64,000 to $110,000, hardly the low and middle-income homebuyers originally intended to be covered.
While the FHA website states that it is “the only government agency that operates entirely from its self-generated income and costs the taxpayers nothing,” that is not true. According to the Congressional Budget Office, FHA estimated that between 1992 and 2012, its mortgage guarantees would save taxpayers $45 billion, but instead they cost $15 billion. FHA also received a $1.7 billion bailout on September 30, 2013. In addition, FHA is required to maintain 2 percent in capital reserves, which would be between $18 and $20 billion, but it only has $4.7 billion, or .41 percent.
Ironically, on the same day that Secretary Castro testified, FHA was once again included on the Government Accountability Office’s High Risk List due to the agency’s “substantial growth in its insurance portfolio and significant financial difficulties.” FHA has been on the list since 2009.
When queried by members of the committee about the premium reduction and FHA’s precarious financial status, Sec. Castro was at pains to provide even basic information about the current value of the FHA portfolio, refused to admit that the FHA was operating outside of the law, could not say when it would achieve the 2 percent capital reserve benchmark, and repeatedly delivered a series of meaningless platitudes about the benefits of homeownership. Rep. Scott Garrett (R-N.J.) pointed out that FHA has offered “pricing gimmicks” while lowering its credit standards, down payment requirements, and premiums, which are tactics that have been criticized elsewhere as “predatory lending.”
“It’s déjà vu all over again,” opined CAGW President Tom Schatz. “When Fannie Mae and Freddie Mac engaged in increasingly risky lending activities and dragged the entire economy into a deep trough, they were only implicitly backed by the taxpayers. Now, the fiscal travails of an agency that is fully backed by taxpayers may lead to another catastrophe. Thanks to its capitulation to President Obama’s idea to lower premiums, FHA insurance is going to be cheaper and preferred for a lot of borrowers who would otherwise have used private mortgage insurance. FHA should return to its original purpose: insuring loans for individuals of modest means, either through income limits or limits on the size of the mortgage. The private sector and private capital should take care of everything else.”
For planting the seeds for the next major housing bailout and failing the most basic financial transparency test about FHA finances, CAGW names HUD Secretary Julián Castro is February Porker of the Month.
Citizens Against Government Waste is a nonpartisan, nonprofit organization dedicated to eliminating waste, fraud, abuse, and mismanagement in government. Porker of the Month is a dubious honor given to lawmakers, government officials, and political candidates who have shown a blatant disregard for the interests of taxpayers.
