A likely bailout of another federal housing agency has drawn fire from congressional Republicans over an item in President Obama's budget that would provide $943 million for the Federal Housing Administration "to cover losses from loans the agency insured as the housing market was collapsing in 2007," Politico.com reported Thursday.
"If the FHA were a private financial institution, likely somebody would be fired, somebody would be fined or the institution would find itself in receivership," House Financial Services Committee Chairman Jeb Hensarling (R-Texas) said in a statement isued on Wednesday, the same day Obama univeiled his $3.77 trillion budget. "Instead, the FHA is merrily on its way to becoming the recipient of the next great taxpayer bailout. It's outrageous."
The infusion from the federal treasury would cover an anticipated deficit for the agency, though it could be averted by other means. The FHA has until September to cover the spending gap through new lawsuit settlements with large banks or greater revenue from new loans than are anticipated in the president's budget, Politico reported. "It is not certain that we will need to take this draw," FHA Commissioner Carol Galante told reporters in a conference call Wednesday.
The projected deficit is higher than the $688 million shortfall projected by the Obama administration last year, when an FHA bailout was averted, owing to the settlement of a lawsuit over the "robo-signing" foreclosure scandal, the payment by Bank of America in a settlement over faulty Countrywide loans, and higher premiums charged for insurance on mortgage loans. An independent study in November of last year, however, showed FHA facing a $16.3 billion shortfall. Most of FHA's losses have been incurred by guaranteeing "reverse mortgages" — wherein seniors borrow against the value of their houses and agree to have their houses sold upon their deaths to pay off the loans.
The agency's fiscal woes, adding to the Fannie Mae and Freddie Mac contributions to the collapse the housing market in 2007-2008, has Republicans on Capitol Hill questioning once again the federal role in housing.
"There's no such thing as a free lunch when it comes to a government program," Rep. Scott Garrett (R-N.J.) said during a hearing Wednesday on FHA's finances. "Much like FHA, free lunches do end up costing much more than you expect."
A taxpayer bailout of the FHA might face opposition from the general public, as well, coming only a few years after the massive bailouts of corporations deemed "too big to fail" in the financial meltdown of 2008. The Obama administration is also urging banks to make more home loans available to people with weak credit ratings.
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