Will FHA Need Even More Than a $1.7B Taxpayer Bailout?

Will FHA Need Even More Than a $1.7B Taxpayer Bailout?Still reeling from the fallout of the housing crisis, the Federal Housing Administration needs taxpayer bailout money to stabilize its long-term finances that cover potential losses on mortgages.
The government agency, which guarantees loans with as low as 3.5 percent down, said it needs $1.7 billion to cover potential losses on the volume of low-down-payment mortgages it insured from 2007 to 2009.
It would mark the first taxpayer funding for the 79-year-old FHA, a byproduct of the Great Depression designed to spur mortgage financing during the lending crisis of the 1930s.
In a letter Friday to Congress, the FHA’s head said the money would stabilize the agency’s long-term viability. The agency has about $30 billion in liquid assets. But it needs more because it is required to keep enough money on hand to cover all projected future losses.
FHA Commissioner Carol Galante informed lawmakers the agency would need the money Monday, the last day of the fiscal year.
“This required mandatory appropriation is an accounting transfer and does not reflect an up-to-date view” of the insurance fund’s “performance, its long-term fiscal health or its current cash position,” Galante wrote in the letter. “In the next few months we expect updated data and economic forecasts to reflect what we already know to be true — the health of the Fund has improved significantly.”
A bailout has been expected for several months, when the Obama administration’s proposed 2014 budget projected the FHA would need $943 million by Sept. 30.
But the agency asked for almost twice that much because of a recent decline in business, caused by rising mortgage interest rates, Galante said.
Indeed, the FHA will likely need even more, according to some reports.
The Los Angeles Times reports that Government accounting rules “mask even greater financial problems at the FHA,” which would be made worse by a stalled housing recovery, Edward J. Pinto, a former Fannie Mae official who is a resident fellow at the American Enterprise Institute think tank, told the Times.
“This number that they’re asking for is a very small number relative to the FHA’s real financial condition,” said Pinto, who estimated that the agency would actually need about $25 billion. “The FHA is woefully insolvent.”

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