FHA can’t cover losses despite $1.7bn cash infusion

by Ryan Smith13 Dec 2013
The Federal Housing Administration remains unable to cover its projected losses even after a $1.7bn cash infusion from the Treasury, according to an independent actuarial report.

The agency is required to keep enough cash on hand to pay the future costs for any defaulted loans, but it fell $1.3bn short for fiscal 2013, according to the report.

In September, the FHA took a $1.7bn cash infusion – the first time in the FHA’s 79-year history that it has been required to tap the Treasury. The agency insures millions of mortgages, and has raised fees and strengthened oversight of lenders in recent years to try to bring in more revenue. However, it’s suffered big losses recently on its reverse mortgage programs.

The programs allow seniors to borrow against the value of their homes for living expenses. The money is generally repaid when the borrowers die or move out of their homes. However, the FHA took a $5bn hit when many borrowers took large up-front payments and then suffered financial problems as the value of their homes fell during the housing meltdown.

But that $1.7bn turned out to be too little, and the White House won’t rule out another cash injection at the end of 2014, according to a Bloomberg report. FHA Commissioner Carol Galante told reporters Thursday that she hopes the continued housing recovery and new revenue will allow the agency to avoid another raid on the Treasury.

“We’re going to continue to do business in 2014, and that volume and revenue that’s brought in from that book of business will go against any negative net worth,” she said.

But the agency isn’t likely to resort to another fee increase, according to Bloomberg. Galante said the fees are getting too expensive for low- and moderate-income homebuyers to afford.

“We do believe we’ve reached a tipping point for premium increases,” she said.


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