Late last week, the Senate Appropriations Committee’s Subcommittee on Transportation, Housing and Urban Development, and Related Agencies held a hearing today to address the role of the Federal Housing Administration (FHA) in addressing the housing crisis. The following witnesses provided testimony at the hearing:

Secretary Donovan testified that the “recent mortgage meltdown has provided ample evidence that we must work to rethink each and every aspect of the nation’s housing finance system.” He stated that the FHA would require additional resources, including new staffing, investments in state-of-the-art technologies, and new efforts to cooperate with enforcement agencies, and development of reform initiatives to respond to the current mortgage crisis. Furthermore, Secretary Donovan emphasized that the FHA is experiencing a level of elevated defaults and foreclosures as a result of the “loss of income combined with low or negative home equity,” and growth in seller-funded down payment loan originations. In response to questions from lawmakers, Secretary Donovan acknowledged that the drain on the FHA’s insurance fund due to defaults could lead the Obama administration to ask Congress for taxpayer money or raise the premiums it charges to borrowers.

Inspector General Donohue expressed concerns regarding the FHA’s “systems and infrastructure to adequately perform its current requirements and services,” and echoed Secretary Donovan’s requests for the need of further resources for the FHA. He also noted that the increasing importance of the FHA’s role as a loan insurer has generated a corresponding increase in the number of lenders seeking to do business with the federal program, which has created overall concern regarding appraisal fraud, identity theft, loan origination fraud, rescue/foreclosure fraud, bankruptcy fraud and home equity conversion mortgage fraud. He emphasized that the challenges facing HUD’s Office of the Inspector General were great, and that only an overhauled FHA could rise to meet such challenges.