FHA to Raise Premiums, Expand Short Sales Under Plan to Avert Taxpayer Bailout

Facing a possible taxpayer bailout for the first time, the Federal Housing Administration will raise mortgage-insurance premiums while boosting relief for distressed borrowers, U.S. housing officials said today.
The premium increase applies to the annual fee charged to borrowers. In turn, lenders are insured against loan default.
Effective April 1, 2013, the FHA will raise by 10 basis points, or 0.1 percent, the annual insurance premium paid by borrowers on new FHA loans.
This increase is expected to add $13 per month for the average borrower and “will strengthen FHA’s capital position without limiting access to credit for qualified borrowers,” housing officials said today.
The agency also plans to expand the use of short sales to provide opportunities for distressed borrowers to get out of massive debt, to move to a new job or start anew while improving the agency’s recovery rate.
“Foreclosures are expensive, for families and the (insurance) Fund,” the FHA said in a statement. “By reducing the likelihood that a family will be foreclosed upon, we reduce costs for the Fund.”
The FHA is a government agency that not only backs U.S. mortgages but also injects liquidity into the housing market by protecting lenders. The FHA currently backs 15 percent of U.S. mortgages, some with down payments as low as 3.5 percent.
However, an independent audit to be released today projects that the FHA will not have the cash reserves to pay all of its obligations, with the total shortfall amounting to about $16.3 billion.
“This does not mean F.H.A. has insufficient cash to pay insurance claims, a current operating deficit or will need to immediately draw funds from the Treasury,” the audit report said.
A taxpayer bailout, nonetheless, is likely looming. Reserve insures more than $1 trillion in mortgages.
In response to the audit, U.S. Housing and Urban Development Secretary Shaun Donovan said today that the FHA will also sell 10,000 delinquent loans per quarter.
Losses on loans insured between Fiscal Years 2007 and 2009 continue to place a significant strain on the FHA’s insurance fund, with $70 billion in FHA claims attributable to loans insured in those years.

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