CCAGW Fuming Over FHA Loan Limit Increase | Citizens Against Government Waste

CCAGW Fuming Over FHA Loan Limit Increase

Press Release

For Immediate Release

Contact:  Leslie Paige  202.467.5334
November 15, 2011Luke Gelber  202.467.5318


(Washington, D.C.) – Today, the Council for Citizens Against Government Waste (CCAGW) issued a statement of stern opposition to the inclusion of an amendment to the fiscal year (FY) 2012 Agriculture, Commerce, Justice, and Science, and Transportation/Housing and Urban Development (THUD) Appropriations “minibus” that would allow the Federal Housing Administration (FHA) to increase its eligible loan limit to $729,750.  The Senate version of the bill included an amendment by Sens. Robert Menendez (D-N.J.) and Johnny Isakson (R-Ga.) that would raise the cap on loans that the FHA can insure and that Fannie Mae and Freddie Mac can purchase to $729,750, while the House bill had no such provision.  The loan limit expired at the end of September and was reduced to $625,000, which was still much higher than the $417,000 limit prior to the housing crash of 2008. 

The “compromise” contained in the minibus to be voted on this week would increase only the FHA loan limit, which exposes taxpayers to the very real threat of another costly bailout.  The FHA provides lenders with a 100 percent government guarantee against the loans it insures, meaning that taxpayers are already on the hook for 100 percent of more than $1 trillion in FHA loan guarantees.  Meanwhile, the FHA’s reserves have plunged to razor-thin levels.  Loans with high loan-to-value ratios for larger amounts carry higher risks of default. 

According to its annual report to Congress, which was released this morning, there is a 50 percent chance that the FHA will require a taxpayer bailout in the near future.  For the third year in a row, FHA’s cash reserves are below the congressionally-mandated minimal capital requirement of 2 percent of projected losses.  Last year, the FHA reserves were also razor thin, 0.5 percent, and this year they have dropped to 0.24 percent.  The FHA has $2.6 billion on hand to back $1.1 trillion in insured mortgages.  Due mostly to the inclusion of this provision in the minibus, CCAGW wrote a letter to Congress opposing the passage of the bill.

“It is the height of irresponsibility for Congress to be passing any increase in loan limits for the FHA,” said CAGW President Tom Schatz.  “With a limit of $729,750, it is clear that Congress is subsidizing some of the wealthiest homebuyers in the country and throwing a bone to a few powerful special interest groups, leaving taxpayers on the hook for yet another housing-related debacle.  The federal government should not be running a mortgage business, nor should it be gambling with taxpayers’ hard-earned dollars when the private sector has the expertise to assess risk and grant loans for those who qualify.  As long as the FHA is treading on such thin financial ice, expanding its presence in mortgage insurance markets should be out of the question.”   

The Council for Citizens Against Government Waste (CCAGW) is the lobbying arm of Citizens Against Government Waste, the nation’s largest nonpartisan, nonprofit organization dedicated to eliminating waste, fraud, abuse, and mismanagement in government.

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