The Senate debate over the confirmation of a Federal Housing Administration commissioner has revealed a divide between some Republican lawmakers over the reason the FHA mortgage insurance fund is in the red.
Many Republican senators view the FHA single-family program as a basket case that is headed for a taxpayer bailout.
“I believe it is time to face reality that the Federal Housing Administration is dangerously undercapitalized, and because of the lack of serious reform FHA teeters on the brink of a bailout,” according to Sen. Richard Shelby, R-Ala.
The ranking Republican on the Senate Banking Committee stressed that Carol Galante has been running FHA as the “acting” commissioner since July 2011 and the agency is still endorsing risky loans.
“I believe Ms. Galante has demonstrated her inability to identify the multitude of problems at the FHA,” Shelby said. And he urged his colleagues to vote against her nomination by President Obama to be the FHA commissioner and an assistant secretary at the Department of Housing and Urban Development.
But the Senate voted 69-24 to confirm Galante with several Republicans voting for her. The vote was taken during a special legislative session on Dec. 27 to address the fiscal cliff and expiration of the Bush tax cuts.
Galante was previously the president of Bridge Housing Corp., a well-known developer of affordable multifamily housing in the San Francisco area.
Her confirmation means she can serve as the FHA commissioner over the next four years of the Obama administration.
Sen. Bob Corker, R-Tenn., voted for her confirmation after securing several commitments from HUD secretary Shaun Donovan and Galante to implement several changes to the single-family program by the end of January.
The Tennessee senator stressed that the problems facing FHA were caused by loans made in 2006, 2007 and 2008. He pointed out that FHA endorsed those loans before Galante came to Washington in 2009 to run the FHA multifamily program.
“What is happening is that the losses from those loans are just now kicking in,” he said. “If we think FHA can get better,” he added, it would be better to confirm Galante so she’s accountable to Congress and can appoint her own staff.
It appears Corker has adopted the view that FHA’s problems are really linked to past mistakes and compounded by the worst recession and housing bust since the Great Depression.
The HUD secretary and Galante have tried to convince Corker and others that FHA loans originated after 2009 will perform better and produce enough revenue to bring the FHA fund back to health.
However, Corker contends more reforms are needed and he wants to reduce FHA’s market share.
That’s why the Tennessee senator pressed the HUD officials to tighten FHA restriction on financing borrowers who have gone through a foreclosure.
On jumbo loans with balances above $625,500, HUD officials agreed to raise the downpayment requirement to 5% from 3.5%.
HUD also agreed to impose a maximum debt-to-income rate of 43% on borrowers with FICO scores below 620. “If a borrower’s DTI exceeds 43%, lenders will be required to manually underwrite the loan,” Galante said in a Dec. 18 letter to Corker.
“These are just a start,” Corker said before voting for Galante’s confirmation, and he stressed that more needs to be done to fix the financially strapped FHA single-family program.
In the House, Rep. Jeb Hensarling, R-Texas, the new chairman of the House Financial Services Committee, is expected to advance a FHA reform bill this year.
Republican subcommittee chairmen have already requested that HUD hand over all communications and documents relating to a fiscal year 2012 independent audit that found FHA’s insured portfolio had a negative $16.3 billion in economic value, down from a positive $2.6 billion in FY 2011.
“It is imperative that Congress fully understand how and why HUD was unable to anticipate the apparent rapid decline in the health of the Mutual Mortgage Insurance Fund. To that end, we ask that you provide the requested documents and responses...no later than Jan. 18,” according to the GOP lawmakers.
The House passed a FHA reform bill (H.R. 4264) in September by a 402-7 vote that HUD officials worked hard to perfect and supported.
But it died in the Senate, despite a last-ditch effort to pass H.R. 4264 by unanimous consent in the final two weeks of the legislative session.
The House bill would have given HUD more powers to police FHA lenders and require indemnification for bad loans.
Sources indicate that some GOP senators blocked the bill because they want to give Hensarling a chance to produce a tougher FHA reform measure.
