Too Soon to Say FHA Will Need a Bailout

by 12 Apr 2013

(NAR) -- Major news outlets have been talking about the Obama Administration possibly requesting $943 million from the U.S. Treasury this year to shore up the finances of the Federal Housing Administration. But whether the 80-year-old agency will actually need the cash infusion is far from clear.

The $943 million figure is part of the Administration’s fiscal 2014 budget proposal, but it’s simply a projection based on current conditions. Whether the funds will actually be needed won’t be known until September, six months from now, when the current fiscal year ends.

Today’s headlines about the bailout stems not from the agency’s single-family mortgage portfolio but from its portfolio of reverse mortgage loans, which it calls home equity conversion mortgages (HECM). These are loans that enable seniors to draw a steady stream of monthly income by tapping the equity in their house. FHA backed almost 55,000 reverse mortgage loans in 2012, making it the biggest participant in the market by far.

FHA Commissioner Carole Galante has since taken steps to pare back the agency’s reverse mortgage risk. Among other things, the agency has reduced its insurance exposure by eliminating its standard, fixed-rate reverse mortgage product, reducing the maximum amount of funds available to borrowers.

Read full article from NAR

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