The Federal Housing Administration, a government agency that insures loans for home building and buying, did not previously report the results of a stress test conducted last year, which revealed that it could lose up to $115 billion over thirty years, The Wall Street Journal reports.
FHA officials sought to measure the costs of big, unforeseen shocks to the economy in an actuarial review report. After the stress test was conducted, hired analysts were told in an email by a senior FHA official not to include the figure in the official report, according to the Journal.
The House Oversight and Government Reform Committee is investigating why the results were not revealed. Committee Chairman Rep. Darrell Issa, a California Republican, called the nondisclosure “troubling” in a letter last week to the FHA’s commissioner.
A senior FHA official wrote to a paid analyst in an email indicating that the FHA hoped that the result of the stress test would draw as little attention as possible.
In the 2012 October email, the official wrote: “In Congressional hearings, it is quite possible that we will be required to present this information on-the-record, but that will be well after the actuarial review is released and the initial media coverage takes place.”
David Stevens, head of the FHA for two years until 2011, justified the FHA’s decision by saying that revealing the number would have been “excessive.”
Edward Pinto, a resident fellow at AEI, explained why the report is troubling on two levels.
First, the FHA already has a weak financial condition with “a net worth of negative $27 billion under private generally accepted accounting principles,” he wrote. The stress test is important because it is used to “ensure that financial institutions have robust capital planning processes and adequate capital.” The test also gauges how much exposure taxpayers face. This is vital because the FHA ensures over $1.1 trillion in mortgage loans. In fact, Pinto recommends applying the Fed stress test to all government-sponsored enterprises.
Second, Pinto wrote that any other company not disclosing an important figure, just because it is unfavorable, “would be hearing from the SEC and be on the wrong side of a flurry of class-action law suits.” Publicly traded companies are expected to provide quality reports in a timely manner and not misrepresent figures. The FHA should be no exception, he wrote.