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HUD to announce more settlements, premium raises to close FHA hole

The Department of Housing and Urban Development will announce smaller settlements with mortgage servicers and additional insurance premium increases to cover a $688 million hole at the Federal Housing Administration.

According to the fiscal 2013 budget projection from the Office of Management and Budget Monday, the FHA Mutual Mortgage Insurance fund could slip into the red this coming year and need a possible $688 million in bailout funds from the Treasury Department.

The MMI fund dropped to 0.24% of the the FHA's book of business last year. The OMB doesn't project the fund to rise back above the congressionally mandated 2% until 2015.

Under a baseline scenario for home price fluctuations developed by Moody's Analytics, the FHA wouldn't push above the 2% threshold until 2014, but HUD Secretary Shaun Donovan said the OMB projections for home prices are more conservative.

Donovan said in a conference call with reporters Monday that the recent foreclosure settlement with the largest mortgage servicers sent roughly $750 million to the FHA to close this hole.

Roughly $500 million of it came from a separate settlement between Bank of America (BAC) over Countrywide origination issues.

Donovan said Tuesday more settlements are due to be announced in the coming days that would put the ultimate amount of money heading directly to the FHA at between $900 million and $1 billion.

The budget also accounts for increases to insurance premiums for FHA-backed mortgages of 10 basis points to all home loans and a 25 bps increase for loans above the conforming loan limit. Congress passed the increases as part of the extension of the tax cuts approved last fall. Donovan added HUD would be proposing higher premium raises soon as well.

"The estimate is wrong for a number of reasons," Donovan said of the OMB report. "All of those (actions) combined makes me confident that we are taking all the actions that we can at this point while ensuring we will not need a future bailout. We will remain vigilant. If there are any additional headwinds, we're prepared to take additional action."

jprior@housingwire.com

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