Administration Asleep at the Wheel on FHA Oversight

Have you heard? Wall Street -- stoked by never-ending taxpayer largesse -- is again chugging down the rails. Destination: raising its own stock prices in the midst of a jobless recovery. But don't be fooled: the engineers of this paper recovery are still asleep at the wheel, allowing runaway mortgage giants Fannie Mae and Freddie Mac to burn through billions more tax dollars without an Inspector General or independent oversight.

Meanwhile, the capital reserves of the Federal Housing Administration (FHA) have dropped dangerously low, raising the specter of another taxpayer bailout of a federal housing agency. As these Casey Joneses watch the next economic train wreck pick up steam, Congress should slam on the brakes and take a long hard look at whether it makes sense to continue pouring public money into a broken federal housing bureaucracy without holding it accountable for every tax dollar it receives.

We recently learned that the Justice Department ruled in September that the Inspector General of the Federal Housing Finance Agency (FHFA) -- the regulator of Fannie Mae and Freddie Mac - could not continue as an independent overseer of the mortgage giants. Instead, IG Ed Kelley has been relegated to the position of "internal auditor," lacking independence and reporting to a political appointee.

Fannie and Freddie were at the heart of the financial crisis and were responsible for trillions of dollars of high-risk lending that inflated the housing bubble. They have already consumed billions, yet Congress and the Obama administration seem comfortable allowing these mortgage behemoths to operate without sufficient independent oversight -- absurd.

In spite of the bailout bonanza, the Federal Housing Administration's capital reserves have plummeted 30 percent as a percentage of its assets in just one year, even as the number of loans FHA supports has increased dramatically. FHA's reserve capital fund has fallen to 0.53 percent, well below the 2 percent required by law. If total reserves fall below zero, FHA will receive an automatic taxpayer bailout. FHA Commissioner David Stevens has promised to turn down the automatic taxpayer cash infusion. I'll believe that when I see it.

This all adds up to a Congress and an administration addicted to using taxpayer subsidies to prop up the flailing U.S. housing market. Yet it was precisely this negligent behavior -- lenders pushing taxpayer-subsidized, low-down payment lending to people who couldn't afford to pay their mortgage -- that got us into this mess. For as you read this, Fannie, Freddie, the FHA and the Veterans Administration stand directly behind more than 50 percent of all American mortgages. That is a shocking amount of money for which the public is already on the hook. Congress, however, continues to run up more mortgage debt on the taxpayers' tab, hoping the next bailout will get America out of this housing mess -- all without independent oversight, transparency and accountability.

Congress can begin fixing this today by putting the brakes on taxpayer money headed into a failed federal housing system until real oversight by an Inspector General is reinstated and an investigation into the congenital lack of transparency and accountability in the federal housing bureaucracy begins. Independent oversight should be the locomotive driving reforms of the federal housing bureaucracy. Instead, many in Congress and the White House have stuck transparency and accountability back in the caboose, an unconscionable mistake for which the American people should not have to pay...again.

Rep. Darrell Issa (R-CA) is the Ranking Member of the House Committee on Oversight and Government Reform.

 

Comments

[saveal]

No oversight? I beg to differ, they are being overseen, and they are doing exactly what Cloward & Piven said had to be done to collapse the economy to this country. Create a crisis where the Feds can jump in and take over. Folks open your eyes this is all engineered by both sides of the isle.

http://www.americanthinker.com/2009/02/the_clowardpiven_strategy_of_e.html

[ignrnthllblly]

"Yet it was precisely this negligent behavior--lenders pushing taxpayer-subsidized, low -down payment lending to people who couldn't afford to pay their mortgage--that got us into this mess."

_________________________________________________________________________

Well, congressman, that is certainly the Republican article of faith and like most other Republican sound-bite dogma--it's opportunistic posturing unsupported by the facts.

As you either know or should know, neither Fannie nor Freddie bought or sold sub-prime loans. Neither were Fannie nor Freddie responsible for Greenspan's keeping interest rates artificially low. And the PRIVATE lenders originating these sub-prime loans were hardly targeting low-income buyers purchasing first homes. They were marketed for entrepreneurs who either could not demonstrate a regular income stream and/or who had written off their incomes. But these undocumented loans were also a perfect instrument for speculators/"flippers" and real-estate agents in overheated markets (such as California). There, sir, is the source of the hot air which inflated the bubble.

[saveal]

The lenders are being forced by the goverment to make those loans to people who can not afford them. The government wants to blame the lenders, but they were the ones that forced the red lineing. Then government controled fannie& freddy bought the loans, and transfered the debt to the tax payer.

[ArmchairRevolutionary]

If this were true, then why are we having the same problem with commercial real estate where there are no such programs that you could point to?

Anyone who has done any real analysis on this bogus idea that lenders were forced to make loans to people that could not afford the loans knows this is nonsense.

[CalexenderJ]

Based on what you've presented here you make a compelling case for additional oversight. Having seen you on tv and listened to you discuss other topics, I'm skeptical that you're providing the entire picture. But if Republicans are tired of being the party of no and crazy obstructionism, if you proposed some legislation that would provide real oversight to FHA and the financial industry, you might win some political points and help the country at the same time.

[chocolatecity]

OK. Haul Donnovan in for testimony and find out why there is no IG.

[harpo73]

If Obama is asleep, then Bush was comatose!!!

admittably not all have been executed perfectly.

BUT considering the ABSOLUTE MESS of 8 years of Pubbism has created, Obama is doing pretty good.

[ArmchairRevolutionary]

Bush being comatose and the current Republican party having nothing to offer is no excuse for Obama to be asleep.

[William50]

I have noticed the zero comments on the rise in the value of the homes across this nation that also is a real problem in the value of the loans. For thirty years, starting in California, home prices have gained ten to fifteen percent a year. This increase was followed by increases of the same amount to auto and health insurance, health care providers and electrical and fuel (both took a fast few billion and then dropped) while the federal government under both R@D administrations said real inflation was two to three percent on income.
If, personal income were or had been tied to the whole economy, today we would not be in this problem with banks and home owners plus millions of people holding worthless paper on over inflated homes or property. Because income was not allowed to increase with values we have a bubble based on income but filled with the hot air of magic increase.
A solution that will work, will harm the banking industry, will shake AIG to the ground and will stop the false use of my handout to banks is this: all homes values cut by thirty three percent and fifty percent in the hardest hit areas. Second all loan interest rates cut in half. That means real income of Americans working will be freed up and the homes now being closed upon may be set at a rate the people can afford.
middleamerican2010
Casey

[ArmchairRevolutionary]

There is no means to simply declare that prices are cut by some percentage, but what you suggest will in fact come to pass in some form. Until that day comes, they are trying to spread the losses from the banks to the public through direct means such as the TARP and indirect means through printing money.