FHA Regains Footing With No Bailout Needed Next Year

Following the first-ever Treasury draw required by the Federal Housing Admnistration this year, the agency says it is back on stable footing and does not anticipate requiring Treasury assistance in fiscal year 2015. 

As reflected in the Obama Administration’s proposed budget for the coming fiscal year, both FHA’s forward lending and reverse mortgage lending programs are expected to be cash flow positive with the Home Equity Conversion Mortgage program anticipated to have a negative subsidy rate at -0.23%. A positive credit subsidy indicates the program would require cash to cover losses. In this case, however, the HECM program is expected to perform on its own, slightly above its break-even point. 

The earlier bailout to the tune of $1.7 billion was largely attributed to losses in FHA’s reverse mortgage portfolio. 

“[The budget estimates the Mutual Mortgage Insurance Fund will have a positive capital reserve balance of $7.8 billion,” said FHA Commissioner Carol Galante of the entire fund outlook following the budget release Tuesday. “We will not require a mandatory appropriation from the Treasury this year.”

FHA touted its performance and positive outlook in the coming year, pointing to achievements such reducing chronic homelessness by 16% and assisting 450,000 homeowners facing foreclosure through loss mitigation assistance in the midst of last year’s budget sequester.

“This is more remarkable given the context in 2013,” Housing Secretary Shaun Donovan said. “Give the sequestration that cut across all of the federal government budget, HUD was faced with finding ways to cut 5% from our budget with very little time to prepare and just seven months left in the fiscal year. We made some extremely difficult choices. We’re proud of what we did to provide best possible outcomes.”

The Administration’s budget also proposed additional funds for housing counseling in the coming year, requesting $55 million in funds versus a level of $40 million that was allocated to the current fiscal year 2014. In 2011, housing counseling funding was cut completely from the final budget leaving agencies unfunded for a period of time. 

Additional measures to improve the agency’s performance include a new quality assurance fee that FHA is authorized to implement in fiscal year 2014. While FHA’s Galante did not specify the amount of the fee or detail into how it will be implemented, she noted a $30 million cap total on the fees that may be charged by lenders once they take effect. 

“The budget gives us authority to create an administrative fee,” she said. “[More information] will be forthcoming as we have further conversations in coming months.”

Written by Elizabeth Ecker

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