Republicans Seek FHA Changes as Prelude to Housing Overhaul

By Cheyenne Hopkins & Clea Benson

Republican lawmakers say they will seek changes at the financially troubled Federal Housing Administration as a first step toward a broader overhaul of the U.S. government role in housing finance. The House Financial Services Committee held a hearing today on the role of the FHA, the first in a series of panels that may lead to legislation that would shrink the government mortgage insurer’s market share and shore up its bottom line. That is a more urgent priority than winding down government-owned Fannie Mae and Freddie Mac, which buy mortgages from lenders and securitize them, lawmakers said. The FHA also takes 100 percent of the losses on the defaulted loans it insures. Lawmakers are investigating whether private interests should take on some of that risk. “Reducing coverage levels will effectively cap the severity of loss on FHA loans and improve their underwriting by putting the lender at risk,” Basil Petrou, managing partner of Washington-based Federal Financial Analytics, which tracks housing policy, said in testimony at today’s hearing.