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FHA alters capital reserve fund approach

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The Federal Housing Administration still has some work to do to meet recommendations made by the Government Accountability Office, the watchdog said Thursday.

The investigative arm of Congress said the FHA has yet to fully enact suggestions made in 2010 regarding risks in its portfolio. The GAO singled out, in particular, how the FHA forecasts its estimates for its capital reserve fund.

The GAO said actuaries that assess the FHA should use a “stochastic simulation” that runs hundreds of possible economic paths. That would provide a distribution of a capital ratio estimates, rather than set numbers.

The FHA didn’t use the method in 2011, but plans to do so for 2012, according to Brian Sullivan, a spokesman with the Department of Housing and Urban Development. The new measure simply wasn’t ready to go for 2011, he said.

The fund fell to 0.24% in 2011, but the FHA’s 2011 actuarial report said it would go back above its 2% statutory mandate by 2014, using its current method that uses specific estimates of measures like home prices.

The FHA said it agrees on the simulation change and other recommendations made in the GAO report.

Andrew Scoggin

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