FHA Likely to Seek Treasury Bailout: Reuters

The Federal Housing Administration will likely request an infusion of Treasury funds to account for losses incurred in the current fiscal year, Reuters is reporting today, based on information from sources who are familiar with the situation. 

In April, the Obama Administration projected that the FHA would need bailout to cover $943 million in losses across its loan portfolios in the fiscal year ending September 30, largely due to reverse mortgage-related losses. 

The agency has maintained that its current and most recent books of business are cash flow positive, and are leading to greater stability among the insurance portfolio. 

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However, FHA has failed to meet its capital reserve ratio in recent years—a minimum which has been set at 2%. 

Republican members of Congress spoken against supporting FHA in the form of a bailout, likening the agency’s need for capital to that of Fannie Mae and Freddie Mac. 

“Hardworking American taxpayers are sick and tired of having to bail out Washington’s failed housing policies, whether it’s the nearly $200 billion bailout of Fannie Mae and Freddie Mac or a bailout of the FHA,” House Financial Services Committee Chairman Jeb Hensarling (R-Texas) said Wednesday, according to The Hill.

The Department of Housing and Urban Development has not commented on the speculation regarding the possible bailout.

Read the Reuters article

Written by Elizabeth Ecker

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  • The article is so poorly written and grossly inaccurate that there are only three things worth commenting on: the $943 million shortfall, Republican Congressional reaction, and FHA mismanagement.

    FHA has many programs it insures. The only Fund needing the estimated $943 million is the MMI Fund. In April, HUD executive staff in testimony before Congress estimated that the HECM portion of that Fund will be about $5.2 billion and the rest of that Fund, about $4.3 billion positive for a net negative $943 million. While an infusion of about $1 billion will help the MMI Fund, much more is required for just the HECM portion to be compliant with the 2% capital reserve requirement.

    It is not just Republicans who are concerned about the situation but it is Congressional Republicans who are carrying the ball on this front. While little can be done to about prior alleged mismanagement, it will take more than the recently passed Reverse Mortgage Stabilization Act of 2013, it will take a proactive risk based management style FHA has failed to show in its eighty-year history. Such change will require both backbone and will.

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