The Federal Housing Administration (FHA) is healthier than its recent $1.7 billion draw from the U.S. Treasury would suggest, an official from the Department of Housing and Urban Development (HUD) said in a Reuters article.
The infusion from the Treasury does not reflect the current health of FHA’s Mutual Mortgage Insurance (MMI) Fund, HUD Secretary Shaun Donovan said, as the federal agency has worked to decrease losses in its portfolio and housing has risen since the November 2012 actuarial review, which revealed the MMI fund had a $16.3 billion shortfall.
Instead, the transfer of funds from the Treasury to FHA was an “accounting transfer” required by the FHA so that the agency is able to keep enough money on hand to cover all projected future losses for the next 30-years, according to Donovan in the article.
“This was an accounting transfer that has not yet caught up with reality. It’s based on the housing market more than a year ago, and doesn’t reflect policy changes we’ve made since then,” Donovan said during a conference sponsored by the Mortgage Bankers Association referenced in the article.
There has been debate among Congressional members as to whether FHA’s reception of $1.7 billion from the Treasury can be considered a “bailout” or a “mandatory appropriation.”
In April, the White House projected that FHA would face a shortfall of $943 million in the fiscal year that recently ended September 30, 2013, to cover losses from its MMI fund.
Some of the steps taken in efforts to shore up the value of the MMI fund and decrease losses include tightening borrower qualifications and loan disbursements under its Home Equity Conversion Mortgage program.
As the housing market recovers, FHA policy changes and rising home prices are helping to shrink the projected funding gap, notes Reuters.
“Sales are up. Prices are up. Construction is up. Optimism is up. In short, so many critical trends are going in a positive direction,” said Secretary Donovan.
Written by Jason Oliva