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 measure 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.”
The F.H.A. insures a portfolio of more than $1 trillion in mortgages. The new actuarial report shows that it expects losses on its portfolio of loans originated between 1992 and 2009, including about $70 billion in expected insurance claims on loans endorsed between 2007 and 2009. The agency anticipates profits on insured loans originated from 2010 on.
During those years, some of the worst of the housing downturn, the F.H.A. continued to provide insurance on loans to help stabilize the housing market. “At some level, the government has already accepted” losses on those loans, Ms. Galante said. “They’re obligations of the government at this point.”
The F.H.A. also said loans where the seller put down money for a buyer’s down payment were a significant drain on its books.
Such “seller-funded down payment assistance” loans make up only 4 percent of the F.H.A.’s portfolio but account for 13 percent of its seriously delinquent loans. The F.H.A. said it expected to lose $15 billion on such loans, which it no longer insures.
Despite the projected shortfalls, the F.H.A. does not have an immediate need for cash, housing officials stressed.
“This does not mean F.H.A. has insufficient cash to pay insurance claims, a current operating deficit or will need to immediately draw funds from the Treasury,” a statement from the agency said.
The determination on whether F.H.A. needs to draw on the Treasury will come next fall, said federal housing officials. In February, the White House will perform its own projections of F.H.A.’s capital needs as part of its budget. Then, the F.H.A. will reassess its books as the fiscal year ends in September, and might request a bailout to shore up its capital ratio. Congress would not need to approve an F.H.A. draw from the Treasury.
Last year, the White House budget showed the F.H.A. in the red, but the agency improved its financial situation over the course of the year and did not require taxpayer financing.
Politicians in Washington, particularly Republicans, have voiced concerns that the F.H.A. could become a drain on the taxpayer, much like Fannie Mae and Freddie Mac. Those mortgage finance giants have not required additional taxpayer financing in recent quarters, as the housing market has stabilized. But they have nevertheless received about $190 billion in federal financing in the last four years.
The F.H.A. cites three reasons for its deteriorating financial position this year. First, its actuarial review uses “significantly lower” house price appreciation estimates than it used last year.
Second, low interest rates — while a boon for the housing market, as they drive refinancing activity and entice new borrowers to buy a house — have hurt the F.H.A.’s bottom line. More borrowers are paying off their mortgages, reducing revenue for the F.H.A. On top of that, borrowers who are not able to refinance are defaulting at higher rates, requiring higher F.H.A. payouts.
Finally, refinements to the forecasting model that the actuaries use led to a higher estimate of losses on defaults and reverse mortgages.
More broadly, the agency is still struggling from housing downturn — and its mission is, in part, to help make homes accessible to the millions of low-income people who might otherwise be shut out of the mortgage market.
Article source: http://www.nytimes.com/2012/11/17/business/audit-shows-housing-agency-facing-shortfall.html?partner=rss&emc=rss
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