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HUD: FHA does not need immediate Treasury rescue

The U.S. Department of Housing and Urban Development reacted to the Federal Housing Administration audit report, stating that a petition to Congress for a Treasury draw is not immediately needed.

With the housing market still in recovery, the capital reserve ratio of the fund used to support single-family mortgage and reverse mortgage insurance programs dropped to a negative 1.44%, with a negative economic value of $16.3 billion.

Given the downturn, this does not mean FHA has insufficient funds to pay for insurance claims, a current operating deficit or a need to immediately petition for a Treasury draw.

A Treasury draw isn’t determined by the projected funds in the report, “but those used in the President’s FY 2014 budget proposal to be released in February, with a final determination on a potential draw made in September,” according to the release.

HUD Secretary Shaun Donovan said the FHA has taken the best plan of action during the economic and housing crisis by addressing areas including risk management, credit policy, lender enforcement and consumer protections.

“During this critical period in our nation’s economic history, FHA has provided access to homeownership for millions of American families while helping bring the housing market back from the brink of collapse to a point where the outlook is positive and recovery is underway,” he said. 

FHA Acting Commissioner Carol Galante added, “We will continue to take aggressive steps to protect FHA’s financial health while ensuring that FHA continues to perform its historic role of providing access to homeownership for underserved communities and supporting the housing market during tough economic times.”

House-price appreciation, continued decline in interest rates and restricting methodology are changes driving FHA’s position compared to the previous year.

National Association of Home Builders chairman Barry Rutenberg said in a statement, with the housing recovery still in its early stages, policymakers needs to take a “holistic approach to the housing finance reform.”

“While there is no doubt that the housing finance system needs to be reformed, the contributions that the FHA has made during this economic downturn underscore the need for a government backstop for both the primary and secondary mortgage markets.

He added, “In times of crisis, private financial institutions have fled the marketplace and consistently failed to step up to the plate. Without government support for home purchasing and refinancing, the nation’s mortgage markets will grind to a halt, throwing the economy back into recession.” 

cmlynski@housingwire.com

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