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Posts Tagged ‘$1.7 billion’

Federal Housing Administration Bailout Mandated by Law

October 1st, 2013 Comments off

Following a story from yesterday, Sept. 30, regarding the need for a $1.7 billion bailout of the Federal Housing Administration (FHA) by Treasury, FHA Commissioner Carol Galante says the request for funds comes from an estimate of forecasted losses from Dec. 2012 that cannot be altered due to mandated accounting rules. She says the next report will document that the agency is in better shape than one year ago. But critics argue the FHA was too lax with bad lenders and borrowers with high default rates. Republican leaders want swift passage of the Protecting American Taxpayers and Homeowners (PATH) Act which will eliminate Fannie Mae and Freddie Mac and reform FHA’s accounting system. As nationalmortgagenews reports, earlier this year the White House had projected a shortfall of $943 million, but that number has grown due to the slowdown of mortgage applications recently. However, Galante says the main reason is due to accounting, MHProNews has learned. The Federal Credit Reform Act of 1990 requires the agency to cover all expected future losses for 30 years and maintain a 2% capital reserve. “No bank in America reserves for credit losses on a 30-year terms, instead banks get to adjust reserves based on economic conditions,” says David Stevens, president of Mortgage Bankers Association (MBA). “But this is very complicated, very unique accounting and technically they have to draw the funds even if they don’t need the money.”

(Image credit: Federal Housing Administration)

Despite Bailout Need, FHA Reform not likely soon

September 30th, 2013 Comments off

The Federal Housing Administration’s (FHA) admission that it will need a $1.7 billion bailout for fiscal year 2013 puts more pressure on Congress to pass an FHA reform bill. Both the House and the Senate banking committees have passed reform bills but they are very different. A collaboration of bipartisan support, the Senate bill primarily strengthens and clarifies the FHA’s ability to regulate lenders and manage the mortgage insurance fund. As nationalmortgagenews tells MHProNews, the House bill restricts FHA loans to first-time homebuyers as well as low-and-moderate-income buyers, and additionally raises the down payment to five percent. Known as the Path (Protecting American Taxpayers and Homeowners) Act, it also decreases the 100 percent FHA mortgage insurance coverage to 50 percent of the loan after five years. In spite of the stated reluctance to bailout another Federal agency, analysts do not expect reform to be considered until next year.

(Image credit: Federal Housing Administration)