FHA Chief: Mortgage Insurer is Not 'the Next Subprime' Crisis

FHA Commissioner David StevensThe chief of the Federal Housing Administration insisted before a Congressional panel that his agency is not the next housing domino to fall, and that the FHA is on sound financial and policy footing as a result of tougher new rules for borrowers.  
The FHA helps reduce lenders’ exposure to risk of default by insuring almost 30 percent of home purchases and 20 percent of refinances.
“While its Capital Reserve Account has decreased too quickly, FHA is not ‘the next subprime’ as some have suggested,” said David H. Stevens, FHA commissioner, in prepared testimony Thursday before House Financial Services Subcommittee on Housing and Community Opportunity. “Subprime delinquencies are 240 percent higher than FHA’s for a reason – subprime loans had much weaker underwriting standards than FHA.”
Tougher measures for borrowers outlined in January are aimed at bolstering the FHA’s depleted reserves, including higher mortgage insurance premiums, tighter credit scoring requirements and higher down payments.
Late last year, FHA reserves to cover losses plummeted to $3.6 billion, or to about 0.5 percent of the $685 billion of insured loans the FHA had in force — well under the 2 percent coverage ratio required by Congress. But Stevens this week said the agency’s reserves were sound and including additional accounts that hold more than 4.5 percent of total insurance-in-force in reserves – “$31 billion set aside specifically to cover losses over the next 30 years.”
Stevens also told the Congressional panel that the FHA is cracking down on “a number of bad actors that were previously not held accountable.”
Since July 1, 2009, there have been 365 cases under investigation, resulting in the withdrawal of approval for 354 lenders and suspension of an additional 6 lenders. The number of cases investigated since last summer “are greater than those investigated in the years 2002-2008 combined,” he said.
“I would like to be clear that many of these reforms were long overdue as FHA did not respond effectively to changes in the marketplace that happened during the housing boom and the subsequent decline – inaction was and is not an option,” Steven said.

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