Capito Opening Statement at Financial Services Committee Hearing on FHA Actuarial Report

WASHINGTON – Rep. Shelley Moore Capito, R-W.Va., made the following opening statement this afternoon at the House Financial Services Committee hearing with HUD Secretary Shaun Donovan and other witnesses to address the financial soundness of the Federal Housing Administration and the recently released FHA Actuarial Report:

“Mister Chairman, thank you for holding this important hearing this afternoon on the financial health of the Federal Housing Administration. Last month, Ranking Member Bachus and I wrote you about the importance of having this hearing at the full committee level and I thank you for accommodating our request.

On November 6, 2009, we received the annual independent actuarial review of the Federal Housing Administration’s Mutual Mortgage Insurance Fund. The Congress had been warned by Housing Commissioner Stevens that this report would find that FHA’s Capital Reserve Account had fallen below the congressionally mandated reserve ratio of 2 percent. Unfortunately, the report found that it had fallen well below this level and now stands at .53 percent.

As we are all well aware, FHA has re-emerged as a major market participant insuring almost 30 percent of home purchases and 20 percent of refinances. FHA has a role to play in our housing market and if it is going to maintain this level of participation we must work together to ensure that the program remains self sustaining and returns to solid financial health.

I am encouraged by many of the steps Secretary Donovan and Commissioner Stevens have taken so far to shore up FHA and there is more to be done. I look forward to a vibrant discussion of whether or not FHA has the resources to upgrade technology and compete for experienced personnel to streamline their operations and improve efficiencies.

Secretary Donovan mentions in his testimony that FHA may be exploring raising premiums for new borrowers. In late 2007, FHA issued regulations to implement a risk-based pricing program. Yet, Congress implemented a moratorium through the HERA legislation which essentially preventing HUD from implementing any risk based pricing through October 31, 2009. Does HUD intend to implement a risk based pricing program once the moratorium expires? If the need to raise premiums on all borrowers is clear, why should we not have FHA price their premiums based on risk?

I would also like to hear more from the Secretary on stories that FHA borrowers are not able to make the first payment. It would be helpful to know the statistics on first-payment default rates. I know that the Secretary has indicated that he will be seeking greater recourse with lenders and I look forward to hearing more details on this proposal.

I want to welcome Secretary Donovan back to our Committee today. The FHA program is an important component of the housing finance market and Congress and HUD must do whatever is necessary to make sure that this program is run in a manner that does not expose the taxpayer to yet another bailout. I look forward to hearing from all our witnesses today on how best to ensure the future viability of the FHA program. Thank you Chairman Frank for holding this hearing and I look forward to hearing from our panels.”