FHA Bailout Potentially on the Horizon

By Stevie Duffin Updated on 4/17/2013

By Daniel Duffield

On Wednesday, associates of the Housing Committee on Appropriations presented many questions and concerns to Shaun Donovan, secretary of the Department of Housing and Urban Development (HUD), in order to bring up the issue of how the Federal Housing Administration (FHA) will get around drawing $943 million from the Treasury.

Such a dipping into the coffers of bailout funds has diminished since the initial estimate of $13.5 billion anticipated during the report last fall.

Despite this, many members of this committee have expressed concerns about the financial stability and sustainability of the FHA, primarily on how it will address its current deficit.

While Donovan reiterated these concerns, he also indicated that the FHA will refrain from deciding a course of action until September 30, attempting to avoid such action at all costs.

During 2012, the HUD estimated a deficit of approximately $700 million, although the agency ended up reporting a $4 billion surplus in 2012 as a result of high loan volumes. Donovan hopes for a similar trend this year.

The most significant problem presented to the FHA is its reverse mortgage program, known as the Home Equity Conversion Mortgage (HECM), estimated to have lost the organization roughly $5 million.

However, the FHA will likely be supported by the changes in FHA policy that includes new mortgage insurance premium increases and several other functions that could save the FHA from a taxpayer bailout.

In spite of this, the FHA ascribes the remaining fiscal hardship to loans insured during and prior to 2009, as well as those backed by the reverse mortgage program.

Although many lawmakers have called for a tapering of the GSEs Fannie Mae and Freddie Mac, Donovan expressed the desire for the FHA reform to be completed in harmony with the GSEs.

"We need to move quickly on shortening the fund and not delay on what might happen in the broader housing reform," Donovan stated.