FHA Hopes to Avoid a Treasury Bailout

Yesterday we touched on the plummeting FHA capital reserves and the possible need for a tax payer bailout. Today the FHA released the official results of the audit as well as their plan for how to shore up its books.

The NY Times has an excellent piece on the FHA’s next steps. An excerpt is below – please click here to read the entire article. This is an important read for any real estate pro – it will impact your business.

The Federal Housing Administration, a government agency that insures mortgages, said on Friday that it was taking steps to shore up its books and avoid a taxpayer bailout.

An independent audit released on Friday projects that the agency’s expected losses will swamp its anticipated revenue, with a shortfall amounting to about $16.3 billion in its portfolio of insured home mortgages. That has raised the question of whether it will need an infusion of cash from taxpayers for the first time in its eight-decade history.

“This is the first time that they’ve totally run out of money,” said Representative Spencer Bachus, Republican of Alabama, said on Thursday. “They have about $600 million, as I understand, that they’re burning through. And within a month, because of the number of foreclosures, they indicated they will have to come to the American people and ask for money.”

But federal housing officials stressed that the shortfall was projected, and that they were adopting measures to avoid tapping taxpayer funds. Shaun Donovan, the secretary of housing and urban development, announced a series of steps to reduce losses and increase revenue at the F.H.A.

These measures include bumping up its annual mortgage insurance premiums on new loans by 10 basis points. That will cost borrowers about $13 a month, Mr. Donovan said. The F.H.A. will also sell off about 10,000 delinquent loans each quarter, increase short sales of homes where the loan exceeds the value and amplify its efforts to keep families in their homes, avoiding costly foreclosures.

The F.H.A. expects these changes, plus other measures it recently put into effect, to contribute $8 billion to $10 billion to its overall value in fiscal years 2013 and 2014. The agency said the new steps would begin as soon as January.

The agency also is asking Congress for new administrative capabilities to better manage its portfolio of loans and cut losses. “We need help from Congress,” Mr. Donovan said.

In a meeting with reporters, Carol J. Galante, F.H.A.’s acting commissioner, said, “It’s literally impossible to say that we will or won’t need a draw” from the Treasury at this point. “We’re doing all this to increase the likelihood that we will not.”