WASHINGTON -- The head of the Federal Housing Administration, which recently received $1.7 billion in its first-ever bailout, said the agency was headed in the right direction, as she faced intense Republican criticism during a lengthy congressional hearing Tuesday.
FHA Commissioner Carol Galante said the agency, which insures low down-payment mortgages, had taken steps to stabilize its finances in recent years to offset losses caused by the housing crisis. Those steps included raising insurance premiums paid by homeowners and tightening credit requirements.
"We are on the right track," she told the House Financial Services Committee.
But GOP lawmakers grilled Galante about her past statements and those by other Obama administration officials that the agency was rebuilding its finances and would not need taxpayer assistance.
The FHA insures mortgages to first-time and low-income buyers and had been self-funded throughout its 79-year history until it was required to tap the U.S. Treasury at the end of the fiscal year on Sept. 30 to cover potential losses.
In the spring, the Obama administration estimated the FHA would need $943 million. And in the years before that, as FHA finances deteriorated, officials downplayed the potential that it would need to tap the Treasury, which it has the authority to do.
"Either the FHA is really bad at assessing risk ... or for years you knew what the real risks were and were simply downplaying it when you came to Congress," Rep. Scott Garrett (R-N.J.) said.
"Do you believe that the FHA, you and your predecessors, have been honest with Congress and the American people over the last five years?" he said.
"Yes, I absolutely have been honest," said Galante, who has held the job since December 2012.
Democrats came to her defense, objecting to the use of the term bailout for the funding FHA received.
They noted the agency has $48 billion on hand. They and Galante said the Treasury money was required under the law to meet a requirement that the FHA have enough reserves to cover losses over the next 30 years based on outdated assumptions about the housing market.
And Democrats said the FHA played a crucial role in stabilizing the housing market after the subprime bubble collapsed.
"I appreciate more than anything else that FHA was there for the citizens of this country that needed them when nobody else was," Rep. Maxine Waters (D-Los Angeles) said.
Committee Republicans said the FHA's problems showed the need to reform the agency. House Republicans are pushing legislation that would scale back the FHA's role in the housing market, which expanded dramatically from 2007-09 as banks pulled back on lending.
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