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Lending

FHA may need bailout after all

The Federal Housing Administration may tap up to $943 million in taxpayer bailout funds, according to the White House and the Federal Housing Administration.

This would be the first such injection in the history of the FHA.

FHA Commissioner Carol Galante said in a conference call the funds may not be needed, but there is a real possibility.

"The President’s budget projects that FHA may need a $943 million credit from the U.S. Treasury in October to make certain sufficient reserves are on hand today to cover projected losses over the next 30-years," Galante said in a statement. "FHA is taking every appropriate action to reduce the likelihood that such assistance is needed."

As the markets wait for more details on President Obama’s 2014 budget, the FHA announcement comes as no surprise given the mortgage insurance fund was negative $13.5 billion.

The agency may not make a final decision on whether or not to take the aid until September 30.

The FHA attributes any remaining financial stress to loans insured in 2009 and prior and from mortgages insured under the FHA's reverse mortgage programs.

Galante explained in a statement that "it is clear that FHA has made significant progress and is on a sound fiscal path moving forward. In fact, were it not for our reverse mortgage portfolio, the budget re-estimate would indicate a positive surplus of over $4 billion at the end of 2013," she said.

"FHA continues to play a crucial role in our nation’s recovery, helping to pull the housing market back from the brink of collapse and providing the needed stability to encourage the return of private capital to the marketplace," Galante added.

Shaun Donovan, HUD secretary, told reporters during a conference call that while he will not comment on the likelihood that the agency will need a bailout from the Treasury, he is confident that the $30 billion in cash reserves will provide assistance to MMI Fund. 

Donovan also pointed out that the projected negative $13.6 billion in capital reserves has significantly shrunk to $943 million due to the FHA taking steps to increase the health of the fund, including recovery of older loans, institution of new premiums as well as progressive steps in the reverse mortgage program.

FHA-backed mortgages are wrapped exclusively into Ginnie Mae mortgage-backed securities. Those structured finance products are unequivocally guaranteed by the Federal government. 

jgaffney@housingwire.com

Kerri Panchuk contributed to this report.

kpanchuk@housingwire.com

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