Can the FHA Avoid a Government Bailout?

After revealing a $16.3 billion deficit in an audit released last month, the Federal Housing Administration is potentially facing a need for taxpayer aid in the coming months. Congress grilled U.S. Housing and Urban Development Secretary Shaun Donovan Thursday to find out what happened and how the FHA is going to fix its problems.

“We will continue, as we have throughout this Administration, to be diligent in taking every action appropriate to protect taxpayers while continuing to ensure that FHA supports the stabilization of the housing market,” Donovan said, according to his prepared remarks as quoted in the Washington Post and asserted that that the FHA “has acted as a vital stabilizing force when an economic crisis precipitated by the housing market could have resulted in this country’s second Great Depression. Our job now is to be good stewards of taxpayer dollars and ensure FHA can continue be a source of opportunity and access to homeownership for future generations.”

Much of the agency’s losses have stemmed from toxic loans the FHA backed between 2007 and 2009. In order to offset those failing parts of its portfolio, Donovan says the agency has plans to sell off 40,000 more of its distressed properties and will try to more successfully modify other loans by reducing payments by at least 20 percent for struggling borrowers. Additionally, the FHA will try to make short sales easier for buyers, in an effort to recoup some of the losses on foreclosed loans.

Donovan also told the Senate Banking Committee that the FHA is anticipating collecting $60 billion in fees for seriously delinquent loans claims by the end of 2014. It has also proposed increasing mortgage insurance premiums again for its borrowers to help cover all the costs.

And in his remarks before Congress, Donovan also stressed that whether or not the FHA will need a bailout is dependent on the Obama Administration budget, rather than on its own current deficit.

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on December 7th 2012 in Mortgage News

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