Budgeting and the Debt Limit
The White House has delayed the release of the FY 2014 budget proposal until March without presenting an exact date for release. Meanwhile, legislators on both sides of the aisle are grappling with spending cut proposals as the March 1 sequester looms. The automatic spending cuts (sequestration) were originally scheduled to take effect on January 2, 2013. Sequestration was intended to produce a total of $1.2 trillion with half of this sum coming from defense spending. Over the past week, several bills have been introduced in the House of Representatives that aim to resolve budget delays and soothe sequestration fears.
H.R. 505
The sequestration date of March 1 has sparked worries about the Federal Government’s abilities to fulfill current appropriations. Representative Keith Ellison (D-MN) has therefore introduced H.R. 505, a bill to repeal sequester while achieving balance in deficit reduction between revenue and cuts. The bill seeks to find a balance between non-defense cuts and defense cuts and to invest in job creation. The bill has been referred to the Committee on Ways and Means, and in addition to the Committees on the Budget, Oversight and Government Reform.
H. R. 444 – Require a PLAN Act
On Feb. 1st, Congressman Tom Price (R-GA) introduced H.R. 444, the “Require a PLAN Act”. This bill states that if the President’s FY 2014 budget does not achieve projected fiscal balance, the President must submit a supplemental unified budget (the total level of expenses and revenue resulting in a deficit or surplus) no later than April 1, 2013. The supplemental unified budget will need an estimate of the earliest fiscal year in which the supplemental budget is not projected to result in a deficit, a detailed description of additional policies to achieve such a result, and an explanation of the differences between the President’s budget for FY 2014 and the supplemental unified budget. The bill passed the House on Wednesday with a recorded vote of 253 to 167.
To view the text of H.R. 444, please visit:
H.R.444
House Financial Services Committee Hearing
On Wednesday, February 6, The House Committee on Financial Services held a hearing titled “Examining the Proper Role of the Federal Housing Administration in our Mortgage Insurance Market”, containing testimony from these four witnesses:
- Mr. Edward Pinto, Resident Fellow, American Enterprise Institute;
- Dr. Anthony B. Sanders, Distinguished Professor of Real Estate Finance, Senior Scholar, Mercatus Center at George Mason University;
- Mr. Basil Petrou, Managing Partner, Federal Financial Analytics, Inc.; and
- Ms. Julia Gordon, Director, Housing Finance and Policy, Center for American Progress.
The hearing’s primary focus was to examine the role of the Federal Housing Administration (FHA) in housing finance and the status of the FHA insurance fund. Some of the witnesses at this hearing were not optimistic about FHA’s solvency and they suggested other policy goals to reduce FHA’s market share and the possible withdrawal from the Treasury. Suggestions included:
- Reduce the loan limit to $625,000 (from $729,750) and by another $100,000 per year, eventually reaching a cap of $350,000;
- Installing a credit score floor at 660 for FHA insured loans;
- Applying a loan-to-value (LTV) maximum at 95%; and
- A minimum down payment of at least 5%.
By way of background, higher default rates experienced during the housing crisis have severely threatened the stability of FHA’s single-family insurance fund, known as the Mutual Mortgage Insurance Fund (MMIF). In fiscal year (FY) 2010, the MMIF’s capital reserve ratio (the measure for MMIF’s strength) fell below its two percent threshold to 0.50 percent for the first time in FHA history.
In November of 2012, HUD released the FHA FY 2012 Actuarial Report, which showed further deterioration in the MMIF’s capital reserve ratio: in FY 2012, the capital reserve ratio fell to negative 1.44 percent, which means the FHA does not have sufficient funds to cover its expected losses. To cover these defaults, the FHA may be required to draw funds directly from the U.S. Treasury to pay unexpected increases in insurance claims. Congress will have a better sense of whether the FHA will draw funds from the Treasury after the release of the Obama Administration’s FY 2014 budget, which is set to be released in March, 2013.
In order to reduce the likelihood of FHA requiring a withdrawal from the Treasury, HUD has enacted new measures, including:
- Increasing collections from older loans within the portfolio;
- Increasing the returns on distressed assets when they are sold;
- Improving refinancing policies/options available;
- Streamlining the FHA short-sale policy;
- Revising the premium cancellation policy;
- Increasing mortgage insurance premiums again;
- Developing new housing counseling incentives and tools;
- Disposing of real estate owned properties; and
- Enact new statutory tools to help FHA achieve its goals.
NAHMA is concerned that the controversy surrounding the solvency of FHA’s single-family portfolio may impact the treatment of the multifamily mortgage market. HUD has already increased mortgage insurance premiums on some multifamily properties in order to help offset its losses in the single-family portfolio, despite the fact that these mortgages have much lower rates of default. NAHMA does not believe that the multifamily mortgage market, which continues to perform well, should be treated in a similar fashion as the single-family market.
To view the testimony and transcripts, please click here:
Committee Hearing
