Officials Contend FHA is Going to be OK
Despite a huge growth in business over the past few years, the Federal Housing Administration (FHA) says its huge portfolio, now worth $750bn, is safely managed as the firm becomes comfortable with dealing with risk. "The 2009 books is solid," said Margaret Burns, director of single family development for the FHA. "The 2007 book is substantially riskier," representing the most challenging portfolio to manage, though in the last two years underwriting standards tightened considerable, but not at the expense of origination volumes. According to Burns, who seeks to set the record straight as "there have been an number of articles about FHA financial health," especially about the state of reserve accounts. "FHA is not sustaining huge losses today that are eating into reserve accounts. Everything is in good shape at FHA." Burns made the clarifications at the American Securitization Forum 2010. Burns also said there were concerns raised about rising defaults, and subsequent pay-outs. She cited the Washington Post as saying this number had tripled, without putting it in the context of the surge in business. Proportionately to portfolio size, she said, defaults are actually down. "FHA business is booming," she said, adding "the increase is manageable, it's the velocity [of new business] that is perhaps alarming. We went form representing less than 3% of market, to more than 30%." "Can the FHA handle this?" she asked. "Absolutely. The performance is very steady." She adds: "7% of loans go to foreclosure. Pay out of claims is very steady at 1 to 2%. Will that grow? Yes... We will see an increase in pay out rates, but its all predictable and manageable." Burns adds that FHA underwriting changes, such as tightening collateral standards and a reduced validity period, reduced to 4 from 6 months, mixed with tighter credit limits, such as a 700 minimum FICO score for eligibility pushed risk more into the periphery of the business. Write to Jacob Gaffney.