FHA in Peril: Housing Policy Experts

The Federal Housing Administration is in peril, with it capital position highly uncertain according to housing policy experts. The current situation could mean big changes ahead for FHA, said members of a panel discussion hosted by housing public policy organization The Urban Institute on Thursday.

The current capital position of the administration problematic as a result of the housing crash, they said, with several options FHA can take to shore up its Mutual Mortgage Insurance Fund as well as the potential for a second Department of Housing and Urban Development (HUD) Reform Act.

“There is substantial risk that FHA’s likely going to have a negative net worth [at some point],” said John Weicher, director of Hudson Institute’s Center for Housing and Financial Markets. “Therefore, under current law, it could require Congressional appropriation for the Mutual Mortgage Insurance Fund.”

Noting FHA’s ongoing claim it is the only government agency that operates entirely from self-generated income, that may no longer be the case in the coming years for FHA he said.

“So far, that has been true, but there’s significant risk that statement will have to be changed,” he said.

The panelists noted the effectiveness of FHA through the housing crisis in providing access to credit for those who otherwise would not be able to obtain it and to keep people—including older Americans—in their homes through FHA’s programs, spanning reverse mortgages.

“Reverse mortgages provided by FHA are the one secure channel for the people that want to access that kind of [home equity] financing,” said Eric Belsky, managing director of the Joint Center for Housing Studies of Harvard University. “FHA is still a leader in that space.”

In terms of some of the options to shore up the forward mutual mortgage insurance fund, the Mortgage Bankers Association’s Vice President of Research and Economics Michael Frantantoni noted three tried-and-true possibilities: increase premiums, tighten credit and improve execution for FHA through actions such as monitoring fraud or improving loss mitigation.

“My concern at this stage is because FHA finds itself in this situation, it may have to take other defensive actions,” said Belsky. The question is: How much appetite is there to try to ensure that credit continues to flow in important ways for public policy reasons while defending taxpayers?”

FHA undergoes an annual independent financial audit, expected to be released next week. Bloomberg News reported this week that sources familiar with the report have alluded to FHA’s needing to seek assistance from the Treasury in order to improve the agency’s capital position.

Written by Elizabeth Ecker

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