The Federal Housing Administration, the next housing crisis?
...When queried by members of the committee about the January 2015 premium reduction as well as the FHA's precarious financial status, Castro was at pains to provide even basic information about the current value of the FHA portfolio. He also refused to admit that the FHA was operating outside of the law, could not say when it would achieve the 2 percent capital reserve benchmark and repeatedly delivered a series of meaningless platitudes about the benefits of homeownership. Rep. Scott Garrett (R-N.J.) pointed out that the FHA has offered "pricing gimmicks" while lowering its credit standards, down payment requirements and premiums, which are tactics that have been criticized elsewhere as "predatory lending."

Ironically, on the same day that Castro testified, the FHA was once again included on the Government Accountability Office's High Risk List due to the agency's "substantial growth in its insurance portfolio and significant financial difficulties." The FHA has been on the list since 2009.

Historically, the FHA has controlled about 10 to 20 percent of the mortgage market. But after Congress increased the size of mortgages the agency could insure from $360,000 to $625,000, the FHA controlled about 60 percent of the low down-payment mortgage market from 2008 to 2010. That means the income eligible for FHA mortgage insurance went from the national average of about $64,000 to $110,000. Put another way, more than twice as many people can get FHA insurance than they could before the limit was raised.

At the same time that eligibility has exploded, FHA has faced serious solvency problems, culminating in a $1.7 billion bailout from the U.S. Treasury at the end of 2013. The Congressional Budget Office estimated that FHA insurance cost taxpayers $15 billion from 2009 to 2012. Nonetheless, the agency's website falsely claims it "is the only government agency that operates entirely from its self-generated income and costs the taxpayers nothing."

Even with all of the taxpayer money that has been thrown at the agency, the FHA is seriously undercapitalized. The law says FHA needs to keep 2 percent cash on hand, which would be about $18 to $20 billion, but as of the beginning of 2015, it had only less than half of 1 percent, or $4.7 billion....