Federal Housing Administration Commissioner Carole Galante assured lawmakers again the agency would not need a taxpayer-funded bailout.
"The FHA is not broke," Galante said at a house subcommittee hearing Tuesday.
But concerns are mounting. Last year, the FHA Mutual Mortgage Insurance fund capital ratio dropped to 0.24%, well below the congressionally mandated 2% threshold. According to the president's budget analysis, the FHA initial capital reserve – which holds cash to cover expected losses for the next 30 years – would experience a $688 million shortfall from what is left in the MMI fund.
An unprecedented bailout would needed at some point this year, according to the analysis.
But the report did not take into account more than $500 million in settlement fees from Bank of America (BAC), other servicers and another $1 billion in revenue from premium increases. FHA said the premium raises would begin in April.
Galante told lawmakers roughly $8 billion will be added to the capital reserve account in 2013 and the capital reserve ratio should crest the 2% ratio by 2015.
But FHA and Department of Housing Urban Development officials have said this before. In a conference call with reporters in November, Galante herself pushed back against research alerting policy makers to a brink the FHA had approached.
"It would take very significant declines in home prices in 2012 to create a situation where FHA would need additional support," Galante said at the time. "There are no widespread opinions or signs that home prices would fall that far."
On Tuesday, Galante still made attempts at soothing concerned lawmakers. But just hours before her testimony, the Standard & Poor's Case-Shiller home price index marked another decline in December to the lowest level since 2002.
She admitted damage from the troubled books of business years 2006 through the mid-point of 2009 were still persistent because of a backlog of more than 711,000 seriously delinquent loans. Some of which are still stuck in a stalled foreclosure process, she said.
"In general, they're not getting better at this point," Galante said. "We have projected substantial losses from those books. We are in a dynamic situation and economy here."