HUD secretary sounds alarm on FHA taxpayer bailout

Members of the House Committee on Appropriations fired off questions Wednesday to Shaun Donovan, secretary of the Department of Housing and Urban Development, seeking answers to how the Federal Housing Administration will avoid a potential $943 million first-time Treasury draw. 

The tap into taxpayer bailout funds has significantly shrunk from the negative $13.5 billion projected in the actuarial report last fall.

Nonetheless, many members of the committee are concerned about the long-term health of FHA and the difficult choices that lay ahead for the agency, particularly the deficit. 

On a similar note, Donovan is also concerned that the FHA will need to draw at the end of the fiscal year given the current state of the agency.

However, he pointed out that FHA will not make a final decision on whether or not to take the aid until September 30 and will not give up until time has run out.

Last year, HUD had a negative estimate in the budget for roughly $700 million. However, the agency reported a nearly $4 billion surplus for 2012 due to loan volumes. Donovan is hoping for a repeat this year.

The biggest headache for the FHA is the reverse mortgage program (HECM) that lost roughly $5 million on the agency’s books. 

However, FHA lifelines include the institution of new premium hikes and recovery of older loans has led to strong results of avoiding a taxpayer bailout, Donovan said.

Nonetheless, FHA attributes any remaining financial stress to loans insured in 2009 and prior and from mortgages insured under the reverse mortgage programs. 

In order to speed up the process of protecting the MMI Fund, Donovan told members that instead of going through the notice and comment rulemaking process, Congress should allow the agency to use mortgagee letters to make reforms.

“If we’re not allowed to do so, we’re going to have negative impacts on households, specifically seniors. We are working with authorizers to make sure we are moving quickly on that,” Donovan said.

Additionally, because FHA is making money on new loans at a rapid pace, Donovan urged for help on better collecting loans as well as making better returns on older loans. 

However, one of the major concerns Donovan has is the future of the housing finance system.

While many lawmakers — including Donovan — are pushing for a wind down of Fannie Mae and Freddie Mac, the secretary wants FHA reform to be done in unison with both government-sponsored enterprises.

“We need to move quickly on shortening the fund and not delay on what might happen in the broader housing reform,” Donovan said. 

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