The Federal Housing Administration’s current book of business is valued at negative $13.48 billion reports the Wall Street Journal based on a pre-release of the annual FHA audit late Thursday.
Additional reports indicate the audit will show FHA’s reverse mortgage (Home Equity Conversion Mortgage) Portfolio being valued at negative $2.799 billion at the end of fiscal year 2012.
Analysts and policy experts expected a substantial shortfall in the fund’s performance for fiscal year 2012, predicting that FHA would require a capital infusion from the treasury for the first time in history to help cover losses. Excerpts posted by Calculated Risk included the financial information provided by FHA’s independent actuarial review.
“Based on our stochastic simulation analysis, we estimate that the economic value of the Fund as of the end of FY 2012 is negative $13.48 billion. This represents a $14.67 billion drop from the $1.19 billion estimated economic value as of the end of FY 2011….” and in comments provided about the HECM portfolio “The FY actuarial review of FHA’s HECM business concluded that the “economic value” of the current FHA HECM book was NEGATIVE $2.799 billion at the end of FY 2012.”
Independent auditors estimate there is approximately a 5 percent chance that FHA’s capital resources could turn negative during the next 7 years. “We also estimate that under the most pessimistic economic scenario, the economic value could stay negative until at least FY 2019,” they said in the report.
During a press conference in Washington, DC, House Financial Services Committee Chairman Spencer Bachus said that FHA is expected to propose increasing the premiums it charges to insure mortgages as a solution according to Bloomberg.
RMD will provide updates as more information becomes available. The report is expected for official release Friday according to an FHA spokesman.
Written by Elizabeth Ecker with additional reporting by John Yedinak