The Federal Housing Administration’s (FHA) audit last week revealed a $16.3 billion deficit, leading to many questing surrounding just how the government agency will recover from such catastrophic loss.
An article from the Wall Street Journal poses six questions regarding FHA’s negative net worth, how it will recover and what effects a Treasury injection would have on the economy.
The Wall Street Journal writes:
The FHA had reserves of $30.4 billion as of Sept. 30, according to estimates by its independent actuary. The report looks at what would happen if the FHA didn’t write any new business and then it makes assumptions about home prices and interest rates, projecting hoe much money the FHA would have to pay to cover any losses over the 30-year life of those loans. The report says that the currents loans, under a base case economic scenario, will lose around $46.7 billion.
The FHA is required to have enough cash in its reserves to pay for anticipated losses, so even though the FHA has some $30 billion in reserves, it would have to take money from the Treasury if the OMB found that the FHA were expected to lose more money than whatever it had on hand.
The FHA will raise annual insurance premiums by 0.1 percentage point, following a series of earlier fee hikes. The FHA will also revamp its program so that borrowers will have to pay mortgage insurance over the life of their loan.
The FHA is also planning to revamp its reverse mortgage program, which could reduce the amount of money that seniors can borrow.
Written by Jason Oliva
