Like many of you, I still believe that having the opportunity to own a home is very much part of the American dream. But after more than four years as your voice in Washington, I believe government involvement in that process has devolved into an American nightmare, particularly when it comes to the Federal Housing Administration (FHA) and government-backed enterprises such as Fannie Mae and Freddie Mac.
Through recent hearings held by the Financial Services Committee, on which I serve, it has become clear the FHA is facing some serious problems that ultimately could have a devastating effect on not only those families who have FHA-backed mortgages but all American taxpayers.
Historically, the FHA’s mission has been to help low-income and first-time home buyers who otherwise have good credit and the ability to repay a loan. However, FHA’s share of the new purchase mortgage market has jumped from just 4.5 percent in 2006 to an average of 29 percent per quarter. And FHA has seen even greater growth in the mortgage insurance market, where its share today represents over 56 percent. What’s more startling is that each mortgage insured by FHA, more than 56 percent of mortgages in the nation, is guaranteed in full by FHA and, ultimately, U.S. taxpayers. If a borrower defaults on the loan, FHA reimburses the lender for 100 percent of the loan amount. Meanwhile, just six private companies are able to offer mortgage insurance, primarily because the rates offered by FHA are so low that the private market can’t compete. If you take a closer look at the rapid growth of FHA’s market share and the stipulations surrounding these mortgages, you’ll notice an alarming issue: FHA is not only exposing taxpayers to the risk of additional bailouts and displacing private-sector insurance, FHA is potentially harming those Americans it seeks to help. It is taking the place of Fannie Mae and Freddie Mac and making the same lending mistakes.
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