November 4, 2009 / 7:58 PM / 9 years ago

House Republicans warn Obama admin on troubled housing agency

WASHINGTON (Reuters) - A pair of House Republicans on Wednesday warned the Obama administration that Congress does not have the appetite for a bailout of the financially strapped Federal Housing Administration.

“If not addressed promptly, problems at the FHA may result in yet another massive taxpayer-funded bailout that this country cannot afford and which the American people will not accept,” wrote Republicans Darrell Issa of California and Spencer Bachus of Alabama in a letter, released Wednesday, to Housing and Urban Development Secretary Shaun Donovan.

The FHA, a division of HUD, announced in September that its capital reserve ratio is expected to fall below the congressionally mandated 2 percent this month.

The FHA had scheduled a news conference for Wednesday to discuss an independent actuarial study of its capital reserve levels. But HUD postponed the study’s release after the independent actuary could not verify its accuracy.

Last month, Donovan told the Senate Banking Committee the FHA would not need to ask Congress for additional funds to increase its capital levels.

“There is no need for any ‘bailout,’” Donovan said, adding that he expects the FHA capital reserve ratio to rise above the 2 percent mandated by Congress in the next two years.

In the letter, dated November 2, Issa and Bachus asked Donovan to provide proof FHA would not need a bailout and what the administration plans to do to boost FHA’s reserve fund.

The FHA has guaranteed about a quarter of all U.S. home loans made this year and needs reserves as a cushion in the event of losses.

The FHA has announced a series of credit policy changes to help rebuild reserves.

Donovan told the Senate panel the FHA has total reserves of more than $30 billion and that they are not expected to fall below $25 billion.

Because about 80 percent of the FHA’s business is with first-time home buyers, who typically have smaller down payments, its role in the housing market is vital, he said.

Additional reporting by Karey Wutkowski; Editing by Dan Grebler

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