Castro’s Clumsiness Isn’t Helping the FHA

by Real estate financingMission+
2 minutes read

Castro
Housing and Urban Development Secretary Julian Castro speaks to lawmakers on the House of Representatives Financial Services Committee.

About one in five single-family loans are backed by the Federal Housing Administration (FHA), a government program for homebuyers who aren’t rich. The guy in charge of that market — more than $134 billion in new mortgages and refis last year — is Housing and Urban Development Secretary Julian Castro.
Today, congressional lawmakers accused Castro’s agency of predatory lending, dressed him down for the FHA’s high default rate and questioned his recent move to cut borrowing costs. Republicans on the House Financial Services Committee called the agency’s low capital reserve “criminal.”
The script was wholly predictable, but Castro fumbled his lines. He didn’t know the agency’s serious delinquency rate (7%) or the share of mortgages behind on their payment (14%). He couldn’t quite explain the difference between the FHA and private mortgage insurers who profit from far lesser risk taking. He played clumsy defense and he missed a chance to highlight the FHA’s value to housing and the economy.
Yes, FHA has some serious problems. Big among them is Wall Street. The agency currently is accountable for some $1.1 trillion in outstanding loans in part because the credit machine that pumped up home values a few years ago isn’t lending enough. Everyone agrees the FHA is too big, but that’s not by design. It’s because the agency provided credit when the private sector wouldn’t.
Congress and the Obama administration also bear blame. The mortgage system is flying on a wing and a prayer. Until Washington and Wall Street can get their act together for a big fix, we need the FHA.
“It has been a real friend to this country,” said Rep. Al Green, a Texas Democrat. Castro couldn’t have said it better himself.
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