Lawmakers Grill HUD Official Over Stretched-Thin FHA

The weak capital position of the ""Federal Housing Administration"":http://portal.hud.gov/hudportal/HUD?src=/federal_housing_administration (FHA) came into play at a hearing Thursday, where members of the ""House Financial Services Committee"":http://financialservices.house.gov/ grilled ""HUD"":http://portal.hud.gov/portal/page/portal/HUD ""Secretary Shaun Donovan"":http://portal.hud.gov/hudportal/HUD?src=/about/principal_staff/secretary_donovan.

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""C-SPAN"":http://www.c-span.org/Events/HUD-Secretary-Testifies-on-Federal-Housing-Loan-Program/10737425943/ captured a look at the hearing as lawmakers took turns interrogating the Obama administration official over substantially fewer reserves in place to meet loan guarantees at a time when the housing market stays near bottom.

When one member pressed Donovan over mission creep for the FHA ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô a reference to the fact that it now occupies a substantially larger share of loan guarantees in the market ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô he characterized the FHA as one with a dual mission.

""In normal times the FHA serves underserved borrowers,"" he said. ""In times of crisis, where there is a lack of capital, the FHA serves as a countercyclical force.""

An exchange between the official and presiding chairman ""Rep. Bill Huizenga"":http://huizenga.house.gov/ (R-Michigan) floated at times between civility and interruption.

""If you're that rock-solid, why isn't private capital stepping in?"" Huizenga asked, leading with concerns about overreach by regulators.

""Fundamentally what we're talking about here is a risk. If the housing market and economy performed worse than the [actuarial report], there is the risk that it could push

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the FHA ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô I can't tell you here today there isn't a risk,"" Donovan advised Huizenga amid a string of questions from the lawmaker.

The federal agency recently came under fire from news media, think tanks, and academia for failing to meet the minimum threshold ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô a reality that may require Treasury to shore it up by some $50 billion over the next several years, according to several projections.

Donovan cast the agency as a needed buttress for the sagging housing market despite risks, describing the ""extremely high quality"" of new books-of-business for the agency and reiterating a past projection that the FHA fund capital reserve ratio will rise above the 2-percent requirement in 2012.

Lawmakers speculated about still-declining home prices, which continue to field underwater homeowners in a bad market and drive up insurance claims for the FHA.

The HUD official cited information from the FHA's actuarial report to justify forecasts that home prices may only fall by 4 percent to 5 percent next year ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô a circumstance that he said would allow the agency to stay afloat.

The subject of conforming loan limits also entered the guarded style of questioning, with members defending a recent raise for the FHA on the one hand and criticizing it on the other.

Asked by one lawmaker whether raised limits will help the FHA, Donovan quickly shot back by saying, ""It does not,"" citing an Obama administration white paper released earlier this year calling for a decrease in the limits.

Other witnesses pressed for more action by the FHA to ensure a stable capital position and prevent a flush of bailout funds from Treasury.

""Patrick Sinks"":http://www.mgic.com/aboutus/mgicleadership.html#sinks, president and COO of ""Mortgage Guaranty Insurance Corp."":http://www.mgic.com/, called for an immediate increase in insurance premiums to a maximum legal limit somewhere between 1.50 percent and 1.55 percent.

He also argued for increases in down payments to 5 percent.