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GAO Adds Undercapitalized FHA to ‘High Risk’ List

FEB 14, 2013 12:05pm ET
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The rapid expansion of the FHA single-family program since the housing crisis and its failure to maintain an adequate capital ratio has landed FHA on the General Accountability Office’s high-risk list.

FHA has not met its statutorily mandated 2% capital requirement since 2009, according to a GAO report released Thursday morning.

“Further, a weakening in the performance of FHA-insured mortgages has heightened the possibility that FHA will require funding from the U.S. Treasury to help cover its cost on insurance issued to date,” GAO said.

House Financial Services Committee chairman Jeb Hensarling, R-Texas, has held two hearings this month on the plight of the FHA mortgage insurance fund.

“We know the FHA is broke and is quickly approaching bailout-broke. So, while it is troubling, it is not surprising that GAO would add FHA to their high-risk list,” Hensarling said.

The committee chairman is planning to hold more hearings on FHA that will eventually lead to legislative proposals.

One FHA reform proposal that has been discussed at the hearings involves reducing FHA’s loan guarantee. FHA currently guarantees 100% of the loan amount while the Department of Veterans Affairs guarantees just 25% to 50% of the loan amount on VA loans.

When asked about reducing the FHA guarantee down to VA levels, FHA commissioner Carol Galante did not dismiss it.

“There is a reasonable conversation to have there—in terms of the pros and cons,” she said.

She noted, however, that VA serves eligible military personal and veterans and FHA serves a larger population. She also noted that “VA has a totally different structure” than FHA.

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