The U.S. Department of Housing and Urban Development acknowledged that the Federal Housing Administration Mutual Mortgage Insurance Fund is in the red to the tune of $16.3 billion and has a negative capital ratio of 1.44 percent, National Mortgage News reported Nov. 14.
The agency has claimed the fund will be back in the black in a year’s time, and in order to accomplish that feat will likely hike premiums again, according to National Mortgage News.
HUD accountants also indicated they expect $11 billion in additional capital to flow into the MMI fund in fiscal year 2013 due to premiums from new business, and this will likely prevent the agency from having to tap into its credit line with the Treasury Department.
In a recent news release, the FHA said the MMI fund’s negative value does not mean the agency can’t pay insurance claims or that it will need to draw funds from the Treasury.
“The need to draw on Treasury funds is determined not by the economic assumptions of this actuarial review 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,” an FHA news release stated. “Also, the actuary’s estimate of the Fund’s economic value excludes $11 billion in expected capital accumulation through the end of FY 2013.”
Acting FHA Commissioner Carol Galante said that loans the agency has made during the Obama administration have been the strongest in its history, and that she expects the agency to continue to perform in its historic role as a provider of financing for home ownership for underserved populations.
Ed Pinto, a resident fellow at the American Enterprise Institute, told National Mortgage News that in order to survive, the FHA needs to reduce its risk tolerance and focus on its traditional mission. He said one way to reduce that risk is to avoid layering risks – like low FICO, low down payments, and high debt-to-income ratios – on its high risk home mortgages.
The FHA said Nov. 16 that it was taking steps to solidify its books and avoid a taxpayer bailout, The New York Times reported.
“This is the first time that they’ve totally run out of money,” said Rep. Spencer Bachus, R-Ala., the Times reported. “They have about $600 million, as I understand, that they’re burning through. And within a month, because of the number of foreclosures, they indicated they will have to come to the American people and ask for money.”
According to the Times, federal housing officials claim that the shortfall was anticipated and that they were adopting actions to ensure that taxpayer funds are not required.
The FHA is seeking new administrative authority from Congress to more effectively manage its loan portfolio and reduce losses.
“We need help from Congress,” HUD Secretary Shaun Donovan said, the Times reported.
Read the entire 64-page HUD report to Congress.