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Current Events & Hot Topics Current Events & Hot Topics

Is There Trouble Brewing at the FHA?

Posted by on Nov. 19, 2012 at 8:55 PM
  • 1 Replies

There's a growing consensus in America that the long-suffering housing market has reached bottom and is now mounting a recovery. Housing starts surged 15 percent in September to their highest level in four years. New home sales in the same month rose 5.7 percent to their highest level in two years. And the Zillow Home Price Index shows that home prices are up 3.4 percent from a year ago.

While these are welcome trends, figures released today from the Federal Housing Administration (FHA) throw a sobering splash of cold water. FHA's FY 2012 Actuarial Study for its main single family program shows that its capital position has turned negative, by $13.5 billion. That's a shift of $23 billion in economic value in a single year, and it puts the 78-year-old agency $34.5 billion short of its legal capital requirement. 

If it were a private company, it would be shut down.

It's bad enough that FHA may be forced to seek a taxpayer bailout, just months after acting FHA Commissioner Carol Galante told Congress that "FHA is not broke." What's worse is that the agency's mounting fiscal problems portend deep trouble for the housing market and the American economy as a whole. 


Read More:  http://www.theatlantic.com/business/archive/2012/11/the-next-housing-bailout-big-trouble-brewing-at-the-fha/265359/

by on Nov. 19, 2012 at 8:55 PM
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jcrew6
by Gold Member on Nov. 19, 2012 at 8:57 PM

Also, an excerpt from the Wash. post:

"Right now the critics are starting to look pretty prescient. By law, the FHA is supposed to hold reserves equal to 2 percent of its portfolio. But an independent, actuarial study released Friday showed that expected losses are so high that the FHA’s reserves will be the equivalent of negative 1.44 percent, or $16.3 billion, for fiscal 2013.

Indeed, the FHA’s predicament is worse than the $16.3 billion figure suggests. If interest rates remain low, more high-quality loans will be refinanced out of the FHA’s portfolio, leaving the agency with the dregs. No one can predict these flows with precision, since the FHA also has a program to retain good-quality, refinanced loans. But the actuarial report suggests that protracted low interest rates could drive the FHA’s capital reserve shortfall above $30 billion. …

Yet even a healing economy is a mixed blessing for the FHA. As household finances improve, more borrowers can qualify for loans without the FHA’s help, which deprives the agency of the market share it needs to bolster its portfolio.


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