FHA Projected Bailout “Outrageous,” Or Could Have Been Worse?

Following the projection by the Office of Management and Budget that the Federal Housing Administration could require a first-ever bailout in the amount of $943 million, some are outraged while others say it could have been much worse.

The projections indicate the shortfall is due to FHA’s reverse mortgage program, but indicate based on upward re-estimates of FHA’s financial position in 2014 that forward loans should result in a reserve surplus of more than $4 billion with reverse mortgages facing a potential shortfall of $5 billion.

House Financial Services Committee Chair Jeb Hensarling (R-Texas) called the bailout “outrageous” in stating his opposition to a taxpayer-funded windfall for the housing administration.

“We now know for certain that the FHA is not just broke, the FHA is bailout broke,” Rep. Hensarling said. “If the FHA were a private financial institution, likely somebody would be fired, somebody would be fined, or the institution would find itself in receivership. Instead, the FHA is merrily on its way to becoming the recipient of the next great taxpayer bailout. It’s outrageous.”

Yet others pointed to the potential for an deeper shortfall to FHA’s insurance fund saw the bottom line projections as a more positive development, still stressing the need to shore up the reverse mortgage program.

“The surplus in FHA’s core business of insuring single-family mortgages shows that the agency’s strategy of adjusted premiums, better management, and targeted policy changes made in recent years is working,” said Julia Gordon, Director of Housing Finance and Policy for the Center for American Progress. “The reverse mortgage program is still struggling, however, and FHA should make changes quickly to put it on a sounder financial trajectory. Congress should provide FHA with the authority to act swiftly to reduce risk going forward.”

Last year’s budget indicated the potential for a bailout of FHA, but ultimately losses were covered in part by a landmark servicing settlement that netted FHA around $1 billion.

“Today’s request simply reflects an accounting requirement for FHA to reserve enough money to pay all claims over the next 30 years if FHA went out of business today,” Gordon said. “The agency still has enough cash in its coffers—around $32 billion—to pay claims for years to come.”

Written by Elizabeth Ecker

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