FHA in the spotlight, structural reform in the shadows

Congress is rediscovering the FHA. Last week’s hearing in the House Financial Services Committee highlighted clashing views from Ed Pinto of the American Enterprise Institute and Julia Gordon of the Center for American Progress, among other experts. Wednesday will see testimony from FHA Commissioner Carol Galante centered on the actuarial report (see our past comment). Look for more hearings to come on the Senate side, too.

Media attention has picked up, too. Nick Timiraos’ column in Sunday’s Wall Street Journal matches a negative headline, “Tangled in Housing Bust, FHA Seeks a Hand” with a thoughtful discussion of how FHA’s financials reflect its role as a countercyclical lender providing essential credit when most others fled during the financial crisis. We certainly need a thoughtful debate about how to responsibly deploy the government’s backing in the housing market, but as Timiraos notes, “that discussion will be harder to have if the housing market is stuck in first gear because only certain households can get a loan”.

Hardly anyone has picked up the true policy challenge—structural reform of FHA. The ideological clashes often miss the real limitations of a loan insurer that cannot change product terms, create new products, or adjust its staffing without an act of Congress. If both ends of the political spectrum can become comfortable with a more independent, more flexible FHA that remains true to its core mission of lending to low-income and first-time homebuyers through up- and down-market cycles, we might just get the reforms we need.