FHA low on funds, will they need a bailout?
In response to the newly released Federal Housing Administration (FHA) audit report, the U.S. Department of Housing and Urban Development (HUD) said that the FHA would not “immediately” need a bailout from the Treasury Department. The FHA has not taken a draw from the Treasury since it was established during the Hoover Administration, and despite analysis from The Wall Street Journal to the contrary, there are other ways of responding to the FHA’s insufficient funds.
Last year, the difference between the FHA’s reserve amount, and the amount it would need if it had to pay all projected losses was only $1.2 billion, or .12 percent of its loan guarantees; the agency is required to keep the amount above 2.0 percent.
The capital reserve ratio of the fund used to support single-family mortgage loans as well as reverse mortgage insurance programs fell to a negative 1.44 percent, with a negative value of $16.3 billion, but HUD says this does not mean the FHA has insufficient funds to pay for insurance claims, or a current operating deficiency. HUD notes that a draw from the Treasury is not determined by the projected funds, “but those used in the President’s FY 2014 budget proposal to be released in February, with a final determination on a potential draw made in September.”
FHA’s role in the economy
HUD Secretary Shaun Donovan said that the FHA has taken the best plan of action during the economic crisis by addressing areas such as risk management, credit policy, lender enforcement and consumer protections.
“During this critical period in our nation’s economic history, FHA has provided access to homeownership for millions of American families while helping bring the housing market back from the brink of collapse to a point where the outlook is positive and recovery is underway,” he said.
FHA Acting Commissioner Carol Galante said in a statement, “We will continue to take aggressive steps to protect FHA’s financial health while ensuring that FHA continues to perform its historic role of providing access to homeownership for underserved communities and supporting the housing market during tough economic times.”
NAHB advocates a holistic approach to reform
National Association of Home Builders chairman Barry Rutenberg said in a statement that the trade group advocates a “long-term, holistic approach to housing finance reform. “In light of today’s report, there will certainly be discussion about altering the structure or role of the FHA. We would urge policymakers to proceed cautiously.”
Rutenberg added, “The FHA was created during the Great Depression to promote stability in the housing marketplace and allow first-time buyers and middle class families to attain the dream of homeownership. Over the ensuing 78 years, the agency has successfully achieved its mission at no cost to taxpayers. The fact that the FHA finds itself in this position now, as opposed to four years ago during the height of the financial meltdown, is testament to its ability to meet its mission in these difficult economic times.”
“While there is no doubt that the housing finance system needs to be reformed,” Rutenberg said, “the contributions that the FHA has made during this economic downturn underscore the need for a government backstop for both the primary and secondary mortgage markets. In times of crisis, private financial institutions have fled the marketplace and consistently failed to step up to the plate. Without government support for home purchasing and refinancing, the nation’s mortgage markets will grind to a halt, throwing the economy back into recession.”