HUD Secretary Resignation Leaves FHA’s Future Uncertain

Yesterday the top governmental housing official–Housing and Urban Development
Secretary Alphonso Jackson–announced his resignation.

And it couldn’t have come at a weirder time. As we reported yesterday, the Justice Department is currently investigating whether or not Jackson gave federal housing contacts to his associates; the outcome of that remains to be seen, but he has in the past come under fire for not answering questions about the issue.

But forget the shake-up for a moment and consider that Jackson stepping down may also bring down some of the housing rescue plans currently under debate. He was, after all, the Bush administration’s biggest advocate for legislation to increase the Federal Housing Administration’s role in refinancing in-trouble mortgages.

As we also reported yesterday, although Jackson’s resignation wasn’t exactly a shock, it’s unfortunately become hard to separate the personal from the professional–and as such, HUD may have suffered permanent damage.

“Regardless of the ethical issues, the operation and survival of HUD’s
programs has also been in question in recent months," Sheila Crowley, president of the National Low Income Housing Coalition, told MHN. "There have been
questions about whether they have been carried out the way there were
intended."

The FHA has already taken on a bigger role in fixing the housing crisis: New, higher loan limits granted by the stimulus act are supposed to be aiding high-cost home areas like Southern California by opening up FHA-backed loans to tons of new homeowners.

And Congress is currently considering increasing the FHA’s scope even more. Congress’ two banking committee chairmen–Representative Barney Frank, a Massachusetts Democrat, and Senator Christopher J. Dodd,
a Connecticut Democrat–are touting a plan to let the FHA
guarantee new mortgages instead of purchasing pre-existing ones.

The plan would help homeowners get more affordable mortgages, with the government assuming the default risk. The proposal has a lot of enthusiasm behind it and it expected to get some coverage this week.

But with Jackson gone, will the Bush administration shoot down any FHA growth? Republican senators shot down the proposed Foreclosure Prevention Act in partially because it included a
provision to let bankruptcy judges lower interest rates, extend loan terms and forgive part of loan principles.

And is upping the FHA’s power a good solution–or at least, a solid start–to correcting the housing crisis? Or is increasing government intervention into the housing market likely to have a negative effect on the already-weak economy by stretching our resources too thin?

What do you think?