Fresh off a series of congressional hearings on the subject, freshman U.S. Rep. Robert Pittenger told the Observer that he would favor privatizing the Federal Housing Administration or otherwise making it act more like a private mortgage insurer.
The Charlotte Republican said Friday he believes the agency, which is in financial distress in the wake of the housing crisis, should raise the down payments it requires from borrowers and narrow its focus.
“It’s been a pretty dysfunctional organization in terms of solid fiscal management and how you run a business,” said Pittenger, who is on the House Financial Services Committee. “We need to stop the bleeding. We need to stop the hemorrhaging right now. We need to privatize it, or we need to set the standards different.”
The FHA does not make loans but insures mortgages made by traditional lenders under certain criteria. Because the agency aims to help low-income people afford homes, down payment requirements are generally much lower than through the private market, as low as 3.5 percent. Many lenders require at least 10 percent down payment with private mortgage insurance.
But Pittenger said the lower down payments don’t necessarily do any favors to the low-income or minority communities they aim to help.
“Do you really do justice to somebody if you give them a loan they can’t afford?” Pittenger said. “The government hasn’t done people a favor. They’ve put them in financial bondage that they’ve got to now go and dig out.”
He said that the “American dream” shouldn’t be defined by homeownership.
The House committee’s hearings were spurred in part because of the Government Accountability Office’s decision to move the FHA to its list of “high-risk” government agencies. A November actuarial report from the FHA showed that its insurance fund has a negative economic value of $16.3 billion, or about 1.4 percent of its total pool.
The FHA has made some changes – including increasing the premiums FHA borrowers pay – to help fix the problem and projects it will return to a positive value by the end of the fiscal year. The agency said that although loans insured between 2007 and 2009 have had high default rates, its more recent loans are among the strongest it has had.
But Pittenger said he does not believe those reports. “They’ve been saying that for years,” he said.
He said he believes it’s inevitable that the FHA will have to draw taxpayer money from the U.S. Treasury.
“They’ve never made any projections,” he said. “They just come back with another super-glorious report about what’s going to happen next, and it never happens.”