A year ago, the Federal Housing Administration was projected to face a $16.3 billion shortfall, but the shortfall now has fallen to $1.3 billion, a new independent audit shows.
FHA received $1.7 billion in funds from the U.S. Treasury in September to help cover projected losses. The agency also raised the amount it charges borrowers to insure mortgages against default six times, and has tightened its underwriting standards in an attempt to prevent future defaults on mortgages.
The FHA insures more than $1 trillion in mortgages. The number of mortgages it insures increased during the housing crisis, and it now insures more than one-third of all U.S. mortgages—that’s an increase from about 5 percent in 2006, Reuters reports. Many loans it insured from 2007 to 2009 had gone bad and had chipped away at its cash reserves. Loans made since 2010 are expected to remain profitable, according to the audit.
The FHA is required by law to maintain a 2 percent capital ratio. It has failed to meet that ratio since 2009. The audit found FHA will likely meet it in the 2015 fiscal year.
The National Association of REALTORS® is a strong supporter of FHA and what it calls the agency’s “vital role in the mortgage marketplace.”
“These promising gains are the result of strong leadership and a commitment to policies that balance risk with FHA’s mission of making mortgage insurance available to qualified home buyers,” NAR said in a statement. “In light of this report, NAR believes that Congress should not dramatically change the FHA or redefine its purpose. We will continue our work with FHA to help make the dream of home ownership a reality for millions more Americans.”
Source: “U.S. FHA Faces $1.3 Billion Capital Shortfall,” Reuters (Dec. 13, 2013)