As the Senate considers passage of the Federal Housing Administration (FHA) Fiscal Solvency Act of 2012 (passed by the House in September), the central question is whether passage would make the achievement of fundamental FHA reform more or less likely?
The need for real reform of the FHA has taken on new urgency given FHA’s twin fiscal and mission failures along with the fact that reform is indispensable to reducing the government’s 90% housing credit footprint:
- Over the last month, even the FHA has begun to acknowledge what many have been saying for years—FHA’s fiscal position is much more serious than it has led Congress to believe. A government bailout of FHA is highly likely in the near term.
- At the same time, FHA’s mission failure raises a key public policy question–what should be FHA’s tolerance for default?
- Achieving comprehensive FHA reform is crucial since shrinking its role is necessary to moving housing finance reform forward. Otherwise, rising GSE guarantee fees will merely cause the business to shift to the Ginnie Mae agencies: the FHA, the VA and the USDA. Ed DeMarco made this point a couple of weeks ago.
Few would agree that the provisions of the FHA Solvency Act are sufficient to protect taxpayers from another government bailout or that it advances housing finance reform. Yet by its very title it will lead taxpayers and members of Congress to incorrectly assume that FHA’s insolvency has been addressed. At the same time, HUD acknowledges that it is in dire need of legislation on matters not covered in the FHA Solvency Act.
In considering passage of the FHA Solvency Act, one needs to consider whether it would make the achievement of comprehensive reform more or less likely. If there is any chance it would be less likely, better to take a pass than to take a chance.