[Congressional Record Volume 147, Number 49 (Thursday, April 5, 2001)]
[Extensions of Remarks]
[Page E574]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                      FHA SHUTDOWN PREVENTION ACT

                                 ______
                                 

                          HON. JOHN J. LaFALCE

                              of new york

                    in the house of representatives

                        Wednesday, April 4, 2001

  Mr. LaFALCE. Mr. Speaker, today, along with Represenative Frank, I 
will be introducing a bill I filed last Congress, the ``FHA Shutdown 
Prevention Act.''
  This legislation provides standby budget authority for HUD to keep a 
number of FHA loan programs operating even when they run out of credit 
subsidy, by drawing on the profits from the other FHA specialty loan 
programs that make a profit for the taxpayer.
  As Congress debates the issue of what we might do with the multi-
billion dollar annual FHA surplus, I think most people would agree that 
the first thing we should not do is shut down important existing FHA 
loan programs merely because of budget technicalities and Congressional 
and Executive inaction. Yet, that is precisely what looms on the near 
horizon, for the second time in less than a year.
  Last July, HUD was forced to suspend insurance for a number of multi-
family and single family loans in the General Insurance/Special Risk 
Insurance (GI/SRI) Funds. These included a number of multi-family loan 
programs, the FHA reverse mortgage program, the 203(k) purchase-rehab 
program, and other important loan programs for low- and moderate-income 
families.
  These programs were not suspended because FHA as a whole is 
unprofitable since all of the FHA loan programs combined make a net 
profit to the taxpayer of over $2 billion a year, according to CBO and 
OMB. These programs were not even suspended because the GI/SRI Funds as 
a whole are unprofitable, because the profitable specialized FHA loan 
programs in the GI/SRI Funds make a profit sufficient to pay for the 
few specialized loan programs that run a small loss.
  The reason HUD was forced to suspend these programs is that Congress 
in effect pockets the profits from FHA programs and uses them to offset 
other funding or to increase the surplus, while the programs that are 
projected to run a small loss require an appropriation for a ``credit 
subsidy.'' This credit subsidy is calculated as the projected 
percentage loss per loan times the expected loan volume for each 
applicable program.
  When the credit subsidy runs out, HUD has no legal authority to 
guarantee new loans for the affected loan programs. Last year, when 
credit subsidies ran out and Congress failed to enact a supplemental 
credit subsidy appropriation in a timely manner, HUD was forced to 
suspend the programs. This year, because of favorable interest rates 
and increasing demand for the construction of affordable rental 
housing, it seems likely that we will run out of credit subsidy 
sometime this spring or summer.
  At a time when there is increasing bi-partisan support to increase 
our supply of affordable housing, it makes no sense to shut down the 
government's loan guarantee program for private sector development of 
affordable housing. At a time when there is increasing Congressional 
interest in reinvesting the huge FHA surplus in other housing programs, 
it ought to start by reserving a very tiny portion of that surplus to 
make sure that basic FHA programs are not shut down.
  The FHA Shutdown Prevention Act would do just that. Last year, this 
legislation was supported by the National Association of Homebuilders, 
the National Association of Realtors, the Mortgage Bankers Association 
of America, the National Housing Conference, the National Reverse 
Mortgage Lenders Association, the Home Improvement Lenders Association, 
the National Renovation Lenders Association, and America's Community 
Bankers.
  Their joint support letter noted that last year's suspension ``caused 
delays and disruption affecting the multifamily insurance programs and 
resulted in delays of construction of needed affordable rental housing 
and will probably result in the loss of some projects that are no 
longer feasible due to delays. In addition, the shortfall in the credit 
subsidy appropriation resulted in the suspension of a number of single 
family insurance programs. . .''
  Don't let this happen again this year. I urge Congress to pass the 
``FHA Shutdown Prevention Act'' immediately.




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