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Report: Federal Housing Administration May Seek Taxpayer-Funded Bailout

November 17, 2012
Tony Lee
Source …..

Taxpayers may have to bail out the Federal Housing Administration (FHA) because the agency will exhaust its capital reserves and already faced a $13.5 billion deficit at the end of September.

The agency’s independent audit will be released Friday, conveniently after President Barack Obama’s reelection, and it will show that the FHA does not have enough money to pay for expected losses of $1.1 trillion in loans the agency has guaranteed.

This will be the first time in the agency’s 78-year history it will need to be bailed out.

According to the audit, “while the FHA currently has reserves of $25.6 billion, it will lose $39 billion on the loans it has guaranteed, leading to the $13.5 billion deficit.”

FHA has backed mortgages of home buyers who pay as little 3.5% down. In 1951, the average down payment on mortgages the FHA backed was 18% and, as a result, there were considerably fewer defaults. Though the FHA “is required by law to maintain reserves equal to 2% of its total loan guarantees,” the agency’s reserves last year stood at 0.1% of all loan guarantees.

Because taxpayers bailed out Fannie Mae and Freddie Mac and already back nearly nine in 10 new mortgages, the report will again highlight how inefficiently and wastefully government spends taxpayer dollars.

The decision to potentially bail out the FHA will not be made until next February. But because the FHA has “permanent and indefinite” budget authority, it will not have to ask Congress for bailout money and would automatically receive the funds from the U.S. Treasury if the Obama administration decides bail out the agency.

An American Enterprise Institute study this month found that the FHA “needs to return to its traditional mission of being a targeted provider of mortgage credit for low- and moderate-income Americans and first-time homebuyers” and stop making loans that result foreclosures.

“It performs a disservice to American families and communities by continuing practices that result in a high proportion of families losing their homes,” the report said.

The report recommended that “given FHA’s mission is to help low- and moderate income homebuyers, the homes it finances should cost less than the median priced home for an area” and  “first-time homebuyers should be limited to an income of less than 100% of area median income and repeat home buyers to an income of less than 80% of area median income.”

The report also recommended the FHA “step back from markets that can be” better served by the private sector, “stop knowingly lending to people who cannot afford to repay their loans,” set “loan terms that help homeowner establish meaningful equity in their homes,” and focus its resources on homebuyers who truly need help purchasing their first home.

One Comment leave one →
  1. 9mmhipchick permalink
    November 19, 2012 12:39 pm

    There is no money and I just saw Obama on T.V say that the gentleman who heads the FHA is doing such a wonderful job.

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