FHA Looking To Avoid Second Treasury Draw

Posted by Patrick Barnard on March 05, 2014 No Comments
Categories : Required Reading

15127_fha_logo FHA Looking To Avoid Second Treasury Draw As was expected (and hoped for), it appears that the Federal Housing Administration (FHA) will not need another Treasury draw in order to shore up its reserves this year, due in part to efforts to bolster its revenue and improve its loan underwriting.

The Obama administration, which this week submitted its $3.9 trillion fiscal 2014 budget plan to Congress, now estimates the FHA has adequate reserves and will not need to turn to the Treasury for a second time, Reuters reports.

Carol Galante, commissioner of the FHA, said during a press call this week that the ‘improved strength’ of the FHA's mutual mortgage insurance fund (MMIF) has allowed the agency ‘to sharpen its focus on placing homeownership within the reach of many creditworthy Americans,’ according to the report.

‘We still have more work to do on sustaining the FHA fund, and we will continue to do that,’ Gallante reportedly said during a press call.

The FHA, however, is going to start charging lenders for a program designed to uncover risk on substandard mortgages it backs – a move that concerns proponents, as it works against the agency's overall goal of making housing more affordable to low-income Americans. President Obama's budget proposal reportedly includes $30 million in new authority for the agency so that it can develop the new quality control program.

In September of last year, the FHA announced that it would need a $1.7 billion Treasury draw – or ‘bailout’ – in order to keep reserves in its MMIF up to the mandated levels. The draw was necessary, FHA officials said, to compensate for losses in the agency's reverse mortgage program, as well as a high rate of default among FHA borrowers. As a result of these losses, the agency's capital reserve ratio fell below the 2% threshold mandated under the Federal Credit Reform Act.

An independent actuarial report late last year found the FHA's MMIF operating at a deficit of $16.3 billion. Initially, White House budget staff said the FHA would need a $943 million subsidy, but the agency ended up drawing $1.7 billion when the fiscal year closed on Sept. 30.

It was the first time in the government mortgage insurer's 80-year history that it required a bailout.

In order to avoid a second draw, the FHA has been raising certain fees in order to keep its reserves up to the mandated levels. In addition, it has tightened underwriting.

Although it has not requested a draw as of yet, the FHA has until Sept. 30 of this year to finalize its decision.

For more, check out the Reuters report.

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