WSJ: Fielding Questions on FHA’s Negative Net Worth

The Federal Housing Administration’s (FHA) audit last week revealed a $16.3 billion deficit, leading to many questing surrounding just how the government agency will recover from such catastrophic loss.

An article from the Wall Street Journal poses six questions regarding FHA’s negative net worth, how it will recover and what effects a Treasury injection would have on the economy. 

The Wall Street Journal writes:

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The FHA had reserves of $30.4 billion as of Sept. 30, according to estimates by its independent actuary. The report looks at what would happen if the FHA didn’t write any new business and then it makes assumptions about home prices and interest rates, projecting hoe much money the FHA would have to pay to cover any losses over the 30-year life of those loans. The report says that the currents loans, under a base case economic scenario, will lose around $46.7 billion. 

The FHA is required to have enough cash in its reserves to pay for anticipated losses, so even though the FHA has some $30 billion in reserves, it would have to take money from the Treasury if the OMB found that the FHA were expected to lose more money than whatever it had on hand.

The FHA will raise annual insurance premiums by 0.1 percentage point, following a series of earlier fee hikes. The FHA will also revamp its program so that borrowers will have to pay mortgage insurance over the life of their loan.

The FHA is also planning to revamp its reverse mortgage program, which could reduce the amount of money that seniors can borrow. 

Read the full story here. 

 Written by Jason Oliva

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  • It seems the author is in the blame the Bush Administration mode.  He declares that Congress and the Bush administration raised lending loan limits in March 2008, allowing the FHA to reach a much larger share of the market.  He points out LA County in particular.  Yet the lending limits were raised in HERA which did not become law until July 2008 and the higher lending limits implemented a few months later.  But in February 2009, lending limits were substantially increased in the Stimulus Package and were uncharacteristically implemented right away.
    It seems even the woes of the FHA program resulting from its intense growth in the last almost four years are being blamed on Bush.  How even WSJ memories conveniently forget.  

  • >>The FHA is also planning to revamp its reverse mortgage program, which
    could reduce the amount of money that seniors can borrow.

    Really?  I thought the upcoming revisions had to do with revised credit and income requirements.

  • A radical approach would be to take a lesson from marketing 101.  Make the FHA programs more attractive. Lower MI, improve loan amounts.  FHA makes it’s money off of fees.  Increase your market share and increase fees.  Make it less attractive and lower your income.  In 2009 when the Reverse Mortgage loan amount was lowered by 10% there was a 39% reduction in loans.  That means a 39% reduction in income and a greater defecit.  Also improving lending will help absorbe the inventory and improve the economy..  Improve the economy and you will see housing prices increase further improving the existing portfolio..  Wake up, make it better and more attractive and increase business not kill business. 

    • Jibberish!!!

      Do you understand how insurance works?  

      Using your standard, if the mortgage insurance was just $1 per loan and all PLFs were 100%, FHA could do hundreds of thousands of HECMs.  Oh that would be a really good idea.

      I am sorry but silly ideas….

  • Instead of reducing the amount of money that seniors can borrow to keep the program solvent, why doesn’t FHA require escrows for taxes and insurance? This will give them a heads up before a loan is seriously in default and help borrowers manage their finances better. 

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