FHA May Need Cash Injection
September 30, 2013
The Federal Housing Administration may need a $1.7 billion bailout from the U.S. Treasury for the first time in its history, Reuters reports.
While the FHA does have more than $30 billion in existing reserves to pay claims, under current law they are required to have a full 30-years’s worth of projected claims on hand at all times. On September 27, FHA announced that it would take a $1.7 billion draw from the Treasury to meet their 30-year reserve requirement.
In April, the White House projected the FHA would face a shortfall of $943 million for the most recent fiscal year, which ends Sept. 30. The agency, which insures more than $1 trillion in mortgages, has made efforts to make up for the anticipated shortfall by tightening up underwriting standards and raising premiums.
The National Association of REALTORS® and other observers note that FHA’s single family mortgage insurance program is healthy, and its loan performance is strong. However, the reverse mortgage program known as Home Equity Conversion Mortgage has had significant losses, and the revenues from the stronger single-family mortgage insurance program are being used to offset those losses.
“The Federal Housing Administration helped provide critical mortgage liquidity to the country during the economic downturn, and like other holders of mortgage risk during that time, it continues to face challenges and incur financial losses," says NAR President Gary Thomas. "The National Association of REALTORS® is a strong supporter of the FHA; we believe it is imperative we get the fund back on stable footing as quickly as possible and we are committed to working with the agency and our congressional allies to further actions and legislation that will help aid in the recovery of the fund so that FHA can continue to serve the home-buying needs of Americans.”
NAR supports the FHA Solvency Act of 2013, which provides FHA with more flexibility to adjust to market conditions and stabilize its finances.
Source: “Federal Housing Administration Needs $1.7-Billion Bailout,” Los Angeles Times (Sept. 27, 2013) and “The Federal Housing Administration May Need a Bailout,” Reuters (Sept. 26, 2013)
Updated: January 18, 2019