Will FHA Lending Changes Put Its Cash Reserves Back in the Black?

The Federal Housing Administration might just see its reserves bounce back this year as a result of higher insurance premiums and a growing number of loans, Bloomberg News reports.

After reaching what some members of Congress called a “dangerous” low level in early 2012 and then receiving about $1 billion as the result of a landmark mortgage servicing settlement in February, FHA’s cash reserves stand to gain as much as $3 billion, according to sources cited by Bloomberg.

Bloomberg reports:

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The Federal Housing Administration may end the fiscal year with about $3 billion in reserves after premium increases and rising loan volume offset a previously forecast shortfall, people with knowledge of the numbers said.

U.S. Department of Housing and Urban Development officials cited the turnaround to lawmakers today as Democrats push for a Senate vote on Carol Galante’s nomination to head the agency, according to the people, who declined to be identified because the discussions are private. Galante, 57, has been acting head of FHA, which is overseen by HUD, since July 2011.

“Carol Galante has taken action to change the way that HUD and FHA do business, including steps to help FHA better manage risk,” according to a HUD document that has been circulating among members of Congress.

The improved picture has emerged after months of turmoil at FHA, which in February was set to ask for a $688 million in a taxpayer subsidy that would have been the first in its 80-year history. The need for a subsidy was eliminated when the agency received nearly $1 billion from a legal settlement with mortgage servicers over flawed foreclosure practices.

FHA’s troubles stemmed from rising defaults on mortgages it insured as it took an expanded role in the market during the peak years of the housing bubble. The agency now insures about 7.1 million loans with outstanding balances totaling more than $1 trillion, triple the amount it held five years ago.

View the full Bloomberg News article.

Written by Elizabeth Ecker

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