FHA to Raise Insurance Premiums to Shore Up $16.3 Billion Hole (Update)

The results of an annual independent audit of the Federal Housing Administration’s financial state revealed Thursday the agency is in a negative capital position in the magnitude of $16.3 billion.

As part of of the efforts to shore up the FHA’s finances, the agency plans to raise annual premiums by 10 basis points and sell 10,000 delinquent loans per quarter, said Shaun Donovan, U.S. Department of Housing and Urban Development Secretary in a statement following the audit.

As for FHA’s Home Equity Conversion Mortgage (HECM) program, the agency told RMD the premium increases will only apply to its “forward” business.

“We do not anticipate applying the premium increase to the HECM program and it is unlikely HECM loans will be part of Distressed Asset Stabilization Program,” said a HUD spokesman in an email to RMD.

The independent audit showed the HECM portfolio’s economic worth stood at negative $2.799 billion, taking a hit due to new projections.

FHA’s “forward business” has an economic net worth of $13.48 billion, a drop of $14.67 billion from the $1.19 billion estimated value as of the end of FY 2011.

“FHA has weathered the storm of the recent economic and housing crisis by taking the most aggressive and sweeping actions in its history to reform risk management, credit policy, lender enforcement, and consumer protections,” said Donovan. “During this critical period in our nation’s economic history, FHA has provided access to homeownership for millions of American families while helping bring the housing market back from the brink of collapse to a point where the outlook is positive and recovery is underway.”

FHA could call on Treasury dollars to help plug the hole—an action never taken in the agency’s 78-year history and one that will not require congressional approval.

Whether or not the agency will draw from the Treasury remains to be seen. HUD said in a statement the need to draw on Treasury funds is determined not by the economic assumptions of the actual report, but those used in the President’s FY 2014 budget to be released in February. A final decision on whether FHA will draw on the treasury will be made in September.

Some groups claim the shortfall reported will not mean that FHA will run out of money to pay claims.

“The agency still has more than $30 billion to settle immediate claims,” said Julia Gordon, CAP’s Director of Housing Finance and Policy. “But federal budgeting rules require the agency to hold enough capital to cover all claims over the next 30 years.”

Members of Congress stressed the need for serious housing reform following the release of the results.

“The recognition that FHA’s economic value is now negative is a stark reminder that we have put off fundamental housing finance reform for too long,” said Senator Bob Corker (R-Tenn.), a member of the Senate Banking Committee. “FHA has strayed a long way from its original mission, and it’s time for us to return to fundamentals in housing, recognizing that having the federal government making loans to people who can’t pay them back isn’t good for homeowners, communities, or the country.”

Written by John Yedinak and Elizabeth Ecker

Leave a Reply

Your email address will not be published. Required fields are marked *

Most Popular Articles

3d rendering of a row of luxury townhouses along a street

Log In

Forgot Password?

Don't have an account? Please