FHA Bailout? Experts Discuss the Future of the Federal Housing Agency

  • December 3, 2012

by Shilpi Paul

FHA Bailout? Experts Discuss the Future of the Federal Housing Agency: Figure 1

This past Friday, Carol Galante, Acting Commissioner of the Federal Housing Administration (FHA), along with several panelists, spoke about the future of the FHA at the Center for American Progress, framed by the recent news of its financial troubles.

In a panel moderated by Wall Street Journal reporter Nick Timiraos, experts discussed what lessons can be learned from the last five years and whether or not the agency will have to tap the Treasury for more funds.

Galante started off the event by assuring the panel and audience that the FHA is on better footing now than it was at the height of the housing crisis, from 2007 to 2009.

“What we are dealing with is the hangover from the prior years books of business,” Galante said of the FHA’s current $16 billion deficit. Since 2010, Galante said, they have taken several actions to boost revenue, including eliminating the seller-assisted down payment program (which cost the agency $15 billion), requiring borrowers with FICO scores below 580 to put down a 10 percent down payment — rather than 3.5 percent — and creating an Office of Risk Management.

The panelists largely supported the FHA, with several noting that the agency was founded on the knowledge of a cyclical market and exists to work as a “smoothing mechanism” when private capital leaves the marketplace. “When the market contracts, the FHA expands,” said Roberto Quercia, Director of the UNC Center for Community Capital.

While panelists agreed that the risky policies of the last decade needed to go, many cautioned against tightening restrictions, like lowering loan limits or raising the required down payments, in order to fix the current financial problems, stating that the economy is not strong enough yet. “The private sector still needs to be repaired substantially,” said Susan Wachter, a professor of financial management at The Wharton School.

It is not yet clear whether or not the FHA will need to call on Treasury for more money, but the takeaway from the event seems to be that many see it moving on the right track. No big policy changes were hinted at during the panel, but we will continue to update you as developments occur.

This article originally published at http://dc.urbanturf.com/articles/blog/experts_discuss_fhas_financial_problems1/6375

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