FHA Asks Treasury for $1.7 Billion Bailout

The Federal Housing Administration has officially requested a $1.7 billion taxpayer-funded bailout from the U.S. Treasury—the first in its nearly 80-year history.

While the agency says its current books are cash flow positive, the bailout is required to address past losses.

“Losses from the 2007 to 2009 legacy books and  Home Equity Conversion Mortgage program (HECM) were responsible for the most severe strain,” FHA Administrator Carole Galante wrote in a Friday letter to Congress. The federal reverse mortgage program is about $5.2 billion in the red, according to the president’s budget proposal for fiscal year 2014.

The FHA plans to withdraw the money from the Treasury by Sept. 30, when the fiscal year ends.

The agency already has sufficient cash to pay insurance claims against mortgage defaults, according to Galante, with more than $30 billion in cash and investments on hand.

“These are more than sufficient resources to allow FHA to fund its claim activity,” she wrote.

In April, the White House estimated the agency would need nearly $943 million to bridge its budget shortfall for the year and cover reverse mortgage losses. However, that figure has grown as mortgage origination volume has decreased, attributed by Galante to a rise in interest rates.

By law, the FHA must maintain reserves equal to 2% of the total amount of home mortgages it insures, intended to cover projected losses over the next 30 years in the agency’s Mutual Mortgage Insurance (MMI) Fund. The fund has remained beneath its Congressionally-mandated capital reserve ratio since 2009.

However, FHA has recently taken steps to strengthen the HECM program by tightening borrower qualifications and loan disbursement rules.

“In the next few months, we expect updated data and economic forecasts to reflect what we already know to be true—the health of the fund has improved significantly,” Galante said in the letter.

Written by Alyssa Gerace

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