The Federal Housing Administration is facing a bailout for the first time in its almost 80-year history, raising a host of fresh questions about the potential for standalone legislation to the reform the agency.
The FHA plans to take a $1.7 billion draw from the U.S. Treasury to shore up its books at the end of the fiscal year. The bulk of the agency's losses are from its reverse mortgages program, after the FHA burned through much of its cash reserves in the wake of the financial crisis when it expanded its reach to offer more loans to needy borrowers.
Some said the renewed scrutiny of the agency's finances will spur momentum for FHA reform in Congress amidst the broader conversation over housing finance reform playing out in both chambers.
"This is an important moment. It gives Republican members who have been pushing for reforms a whole new set of talking points, and I think it really could put some Democrats on the defensive as it relates to defending the FHA," said Edward Mills, a policy analyst at FBR Capital Markets. "I think that the draw has the effect of peeling out FHA reforms — in trying to pass an FHA solvency bill as standalone legislation."
Yet others argued it would instead provide more momentum to broader housing finance reform. The House bill, for example, includes both measures to reform the FHA and wind down the government-sponsored enterprises.
"The FHA bailout gives a boost to GSE reform," said Mark Calabria, head of financial institution studies at the Cato Institute. "The problems at FHA illustrate the broader question about how well federal mortgage finance policies protect the taxpayer. So if one has concerns about all the homeownership policies, this just reinforces the point."
Congress has already made some recent strides to help FHA shore up its finances, passing a narrow bill in July that authorized it to make certain changes to the struggling reverse mortgages program. The Senate Banking Committee also passed a bipartisan bill in July that would help strengthen the agency's underwriting standards and give it more authority to go after lenders for making fraudulent or inappropriate loans, while the House Financial Services Committee passed its broader mortgage finance bill containing more sweeping changes to the agency's structure and finances.