By Bailey Williams

WASHINGTON–House Republicans pressed Housing and Urban Development Secretary Julian Castro Wednesday to admit that the Federal Housing Administration doesn’t have enough capital reserves, but Castro was adamant that the mortgage insurer was on a strong path.


During a hearing of the House Financial Services Committee, Castro refused to say outright that the FHA, which operates on self-generated income to insure approved mortgages, was in violation of the capital ratio law. The ratio is a standard set by Congress to ensure that government entities funded through private income such as the FHA do not need government funds to remain solvent during an unexpected financial or housing crisis.


Castro insisted that the FHA was working to reach the 2 percent capital reserve ratio, which is the amount of money an organization has on reserve compared with the organization’s income.



House Financial Services Committee Chairman Jeb Hensarling, R-Texas, said the FHA has to remain accountable with the capital reserve ratio. The law is there to protect house owners, he said.


Castro said the FHA is “on a strong path” to reach the ratio in the next two years.


But Rep. Steve Stivers, R-Ohio, said math he did on his own predicted that the FHA would not be able to reach the ratio for another seven years.


Stivers asked whether Castro and the FHA viewed the ratio as a requirement or a suggestion.


“I certainly do consider it a requirement to get there,” Castro said.


Castro estimated that the FHA has not been iin compliance for at least five years. He noted however, that this should not deter people from using the FHA.


Republicans also pressed Castro to ensure the FHA doesn’t help people buy houses they cannot afford.


Democratic representatives in the committee expressed different concerns, generating less heated debates.


“Secretary Castro, although today you will likely take a fair amount of criticism from my colleagues on the other side of the aisle for your decision, I’d like to take a moment to remind them that when the private sector virtually left our struggling housing market during the worst of the crisis, the FHA stepped up,” said Rep. Maxine Waters of California, the top Democrat on the committee.


Waters said the housing market continues to suffer so “a strong FHA is still necessary.”