Legislators Scrutinizing Lending Activities of FHA
Legislators are scrutinizing lending activities of the Federal Housing Agency. It made its debut during the time of the Great Depression to help the damaged real estate market get back on its feet with the assistance of the government coming forward to insure mortgages. But currently – the worst economic crisis since then is causing worry regarding the strength of what so far has been thought of to be the pillar of stability.
Recently a congressional committee began scrutiny to find out how and why the reserves of FHA have gone down so rapidly. Any moment there is the danger it might drop below the stipulated level.
Some of the legislators are worried that FHA has been too much exposed to the housing market and as such would not be able to operate further without bailout from the government. The legislators argue that the lending requirements of the agency are too easy and this will lead to a rerun of the situation that led to the present crisis in the housing market. Of particular worry is the agency permitting extremely low down payments – 3.5%. If the borrowers do not have much of a stake in the houses then borrowers, who may be otherwise credit worthy, would walk away from the loan if they faced any financial difficulty like the loss of jobs.
Rep. Scott Garrett (Republican/New Jersey) said, “You have to ask the question: ‘Have we figured out what got us here in the first place and are we going to make sure we don’t replicate that failed system?” His suggestion was to change the minimum requirement of down payment to 5% to reduce foreclosure or default risks.
David H. Stevens is the new commissioner of FHA. He differs with Garrett and feels such a move would jeopardize the newly emerging stability in the housing market. He argued that an individual wanting to purchase a house worth $300,000 would have to somehow raise extra down payment expenses of $4,500. This, he felt, would “retard recovery.”
Stevens elaborated that changes are being effected in the agency to bring down the possibility of risk. Loans would be given to those with better credit ratings. He reiterated that FHA would not be requiring bailout assistance from the government.
FHA is walking on a tight rope – trying to bring out a recovery in the housing market without over reaching itself and without getting money from the taxpayer.
