The Federal Housing Administration mortgage insurance program plays an important and vital role in the nation’s housing financing system and has shown tremendous leadership and strength during the economic crisis, NATIONAL ASSOCIATION OF REALTORS® President Moe Veissi told a House Financial Services Committee yesterday.

“FHA ensures access to safe and stable mortgage financing in all markets, particularly in recent years when private financing evaporated,” Veissi said.

Since the collapse of the private mortgage market, FHA has been one of the primary sources of mortgage financing available to responsible, qualified borrowers, with as little as a 3.5% down for individuals with good credit.

Without FHA, many families — especially those traditionally underserved by the private market — would be unable to purchase a home, and communities would further suffer from foreclosures and blight.

The Financial Services Committee hearing delved into the soundness of FHA. The agency is required to set aside 2% reserve as a rainy day fund to pay future losses. FHA officials say higher-than-expected defaults, claims, and losses caused the reserve to fall below the required 2% level. At the same time, as private mortgage money has become harder to get, more consumers have opted for FHA mortgages, so the agency’s insurance-in-force has grown.

Veissi said that despite its capital reserve fund remaining below the congressionally-mandated level, the agency has taken adequate steps to ensure its long-term financial soundness. FHA continues to have significant resources — enough to pay 30 years’ worth of expected claims on its portfolio — and has $2.5 billion in additional cash reserves, he said.

“FHA has shown its considerable strength during the economic and housing downturn, filling the gap when the private market is not engaged in the market. The agency is not subsidized and has never required a federal bailout; actual total reserves are higher than they have ever been,” Veissi said.         

He also suggested that Congress permanently raise the FHA mortgage loan limits so home buyers and home owners in high-cost areas continue to have access to safe, affordable FHA-guaranteed loans.