Finance Committee Chair Suggests FHA Could be Next Countrywide

By Jann Swanson

On Wednesday the House Financial Services Committee held the first of a scheduled series of hearings on the financial condition of the Federal Housing Administration (FHA).  A memo released by the Committee’s chairman Jeb Hensarling (R-TX) says that the FHA’s single-family insurance fund which insures more than $1 trillion worth of home mortgages, has a negative economic value of $16.3 billion, according to an independent actuarial report released in November which means that if the FHA stopped writing new business today, it could not cover the losses anticipated on loans it has already insured. Basil N. Petrou, Managing Partner of Federal Financial Analytics, Inc. presented the Committee with a laundry list of recommendations for the agency. Putting his recommendations for FHA in the broader framework of U.S. mortgage-finance regulation and government intervention, Petrou said he also recommends that Congress work to ensure that an array of pending prudential rules for banks (e.g., those implementing the Basel III capital and liquidity rules) do not block the re-entry of private capital and prevent constructive reform of Fannie Mae and Freddie Mac. He also advised that the pending qualified residential mortgage (QRM) rule not set a simple down-payment requirement without regard to the use of regulated, capitalized providers of credit-risk mitigation like private mortgage insurers.