FHA Looks to Raise Mortgage Fees to Avoid Bailout

November 19, 2012

The Federal Housing Administration plans to raise its mortgage fees next year in order to help avoid a taxpayer bailout, the Obama administration announced. A report last week revealed the FHA, which insures mortgages, faces a $16.3 billion deficit due to a rise in mortgage delinquencies over the last few years, particularly among loans that originated during the housing bubble from 2007 through 2009. 

FHA says it plans to raise its premiums on loans it guarantees by 10 basis points, which equates to about $13 per month extra to borrowers’ costs, Reuters reports. Also the FHA says it plans to increase short sales on loans it guarantees, in an effort to avoid more borrowers foreclosing on their properties.  

FHA is a big contributor to first-time home buyer mortgage funding. It insures about 1.2 million mortgages, which is about 15 percent of all U.S. home loans. The number of loans it insures has increased dramatically over the last few years. In 2006, FHA insured just 5 percent of the all U.S. home loans. 

FHA is federally mandated to maintain a 2 percent capital ratio—a target it has yet to reach in four years. Its current ratio is negative 1.44 percent, according to a recent audit of its finances. 

"The administration will do its best not to have FHA make a Treasury draw," Cliff Rossi of the University of Maryland's business school and a former employee at Fannie Mae, Freddie Mac, and Citigroup told Reuters. "Some sort of sleight of hand, they will get creative as they want to be, and likely avoid getting in a payment from Treasury."

Source: “FHA to Shore Up Cash in Bid to Stave Off Bailout,” Reuters (Nov. 16, 2012)