Monday, Jun 25, 2018
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Officials hope FHA can avoid a bailout

WASHINGTON — Obama administration officials say they are hopeful that the Federal Housing Administration can avoid a bailout despite the agency’s increasingly troubled finances.

The FHA said it ended the latest fiscal year in September with $16.3 billion in projected losses, which could require an infusion of taxpayer money into the government agency for the first time in its 78-year history.

A final determination on a bailout would not come until next September and could hinge on continued improvement in the housing market, officials said. The agency also plans changes, including increasing the premiums it charges homeowners to back their loans, that it hopes will boost its reserves.

The FHA insures loans with down payments as low as 3.5 percent, often to low-income borrowers, and its role in the mortgage market has expanded since the bursting of the subprime housing bubble.

That expanded role has drawn criticism from some lawmakers and analysts, who have warned it could put taxpayers at risk of propping up the agency, which has funded its operations entirely though insurance premiums.

“With its dual mission of providing access to homeownership for under-served populations and supporting the housing market during tough times, there is little doubt that FHA helped prevent a much deeper crisis,” Housing and Urban Development Secretary Shaun Donovan told reporters Friday. “That progress, however, has not been without stress.”

Most of the FHA’s problems stem from mortgages it backed from 2007 into 2009, Mr. Donovan said. Those loans are projected to result in $70 billion in future loss claims to the agency. Mortgages backed by the agency in the past two years are performing much better.

The FHA insures about 1.2 million mortgages. It now backs about 15 percent of mortgages, up from less than 5 percent in 2007 but down from a high of nearly 30 percent in 2008 as the housing market was collapsing.

The FHA must hold enough cash reserves to cover future losses, but its annual actuarial report to Congress on Friday showed that the agency’s reserves as of Sept. 30 were $16.3 billion below anticipated losses.


The FHA’s cash reserves aren’t supposed to drop below 2 percent of projected losses. They ended the 2012 fiscal year at -1.44 percent, down from 0.24 percent at the end of 2011.

Senate Banking Committee Chairman Tim Johnson (D., S.D.) said he was “deeply concerned” by the report and would call Mr. Donovan to testify about how to get the FHA on “a fiscally sustainable path.”

The actuarial report’s findings don’t determine whether the FHA will have to draw money from the Treasury, which it has the authority to do.

Continued improvement in the housing market would help the FHA’s long-term outlook. And the changes coming soon also will help generate more revenue and reduce future losses, officials said.

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