GAO Expresses Concern On FHA Risks

Posted by Orb Staff on February 15, 2013 No Comments
Categories : Residential Mortgage

13306_warning GAO Expresses Concern On FHA Risks The Government Accounting Office (GAO) is warning that the problems facing the Federal Housing Administration (FHA) may endanger the agency's ‘financial soundness.’

In testimony delivered yesterday before the House Committee on Oversight and Government Reform, Comptroller General Gene L. Dodaro presented a GAO overview on the federal programs that pose the greatest risk. Citing the FHA as a "modified high risk," Dodaro cited the depletion of the FHA's Mutual Mortgage Insurance Fund as being significantly problematic.

‘A new challenge for the markets has also evolved as the decline in private sector participation in housing finance that began with the 2007-2009 financial crisis has resulted in much greater activity by the FHA, whose single-family loan insurance portfolio has grown from about $300 billion in 2007 to more than $1.1 trillion in 2012,’ Dodaro said. ‘Although required to maintain capital reserves equal to at least two percent of its portfolio, the FHA's capital reserves have fallen below this level, due partly to increases in projected defaults on the loans it has insured. As a result, we are modifying this high-risk area to include the FHA and acknowledge the need for actions beyond those already taken to help restore the FHA's financial soundness and define its future role.

‘One such action would be to determine the economic conditions that the FHA's primary insurance fund would be expected to withstand without drawing on the Treasury,’ Dodaro added. ‘Recent events suggest that the two percent capital requirement may not be adequate to avoid the need for Treasury support under severe stress scenarios. Additionally, actions to reform [the government-sponsored enterprises] and to implement mortgage market reforms in the Dodd-Frank Act will need to consider the potential impacts on the FHA's risk exposure.’

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