17th April 2013

FHA Actually May Require a Bailout

posted in Appraiser News |

The Federal Housing Administration may require a taxpayer bailout after all, possibly needing as much as $943 million, HousingWire reported April 10. If an FHA bailout occurs, it would be the first one in the agency’s history.

FHA Commissioner Carol Galante cautioned that a bailout is not a certainty, but one nonetheless was included in the White House’s proposed 2014 fiscal year budget.

The FHA’s mortgage insurance is reported to be negative $13.5 billion, but despite that significant deficit, the agency likely would not make a decision on whether or not to take taxpayer aid until at least September.

“The President’s budget projects that FHA may need a $943 million credit from the U.S. Treasury in October to make certain sufficient reserves are on hand today to cover projected losses over the next 30 years,” Galante said, HousingWire reported. However, she also noted that the FHA was taking action to reduce the likelihood that such assistance would be required.

Galante noted that were it not for the FHA’s reverse mortgage portfolio, the agency would have a positive surplus of more than $4 billion by the close of 2013.

Shaun Donovan, U.S. Department of Housing and Urban Development secretary, said that the FHA’s projected negative $13.6 billion in capital reserves has shrunk to $943 million due to the agency taking steps to improve the health of its mortgage insurance fund. Those steps have included recovering older loans, establishing new premiums and addressing faults in the reverse mortgage program, HousingWire reported.

FHA-backed mortgages are wrapped exclusively into Ginnie Mae mortgage-backed securities, which are guaranteed by the federal government.

Reprinted from Appraiser News Online

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