Federal Housing Administration running low on cash
Filed under: Economy
As of Oct. 1, for the first time in its history, the Federal Housing Administration (FHA) will see its cash reserves fall below the two percent minimum mandated by Congress. The cash reserve numbers were calculated as part of a required audit due out this fall, according to a report in The Washington Post. (I discussed this likely possibility two weeks ago.)The FHA's cash reserves are built with the insurance premiums home buyers pay when they close on an FHA loan. While private mortgages are insured using Private Mortgage Insurance (PMI) premiums paid monthly by borrowers who don't put down at least 20 percent on a home, FHA insurance premiums are paid in full at the time of closing. The insurance premium is usually folded into the mortgage and paid over the life of the loan.
Stevens thinks he can fix the agency's problems of beefing up reserves using other tactics:
* He plans to propose that banks and other lenders that do business with the FHA have at least $1 million in capital so they can repay the agency for losses if they were involved in fraud. Currently they only need to have $250,000 in capital.
* He plans to propose that lenders take responsibility for any losses due to fraud committed by mortgage brokers with whom they work.
* He plans to hire a chief risk officer. This FHA has never had a risk officer in its 75-year history.
Even if he does none of these things, the audit shows that the agency's reserves will rebound in two or three years, so there may be no need for a government bailout. The audit uses projections based on future home prices, interest rates and the volume and credit quality of the FHA's business.
With its new role backing loans that include more credit worthy individuals, the FHA's borrowers are now more credit worthy than in the past. The agency backed 23 percent of all new loans made in 2009 versus just three percent in 2006. During the housing boom, when money flowed freely with zero down subprime loans easily available, few people turned to the FHA. That's no longer true.
The FHA does not make loans, it insures lenders. But it's the higher level of insured loans that has some in Congress concerned that the FHA may be getting in over its head. They wonder if the FHA is prepared to handle the additional workload and whether this drop in reserves could turn into an even bigger problem in the future requiring a bailout. For now the answer appears to be no. But it's worth wondering whether the housing market has truly hit bottom and is on the road to recovery. If not, the FHA could be in for a rough ride.
Lita Epstein has written more than 25 books, including The 250 Questions You Should Ask about Buying Foreclosures.
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Reader Comments (Page 1 of 2)
9-18-2009 @ 12:00PM
clem591 said...
GREAT POST, BUT I DID REMEMBER THE CREATION AND THEIR REASON FOR IT. WHATS THE DEFERENCE BETWEEN BEN FROM THE FED ALONG WITH THE BUSH BUNCH SAYING WE WEREN'T IN A RECESSION , AND BEN AND THE OBAMA BOYS SAYING IT IS OVER? WHAT CLUB DID THE FED AND TREASURY BUNCH COME FROM?
9-18-2009 @ 10:59AM
lpi2007 said...
Yesterday The headlines was the ression/Depression is over, the Housing Administration must not of heard.. HUH,,
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9-18-2009 @ 11:10AM
lpi2007 said...
WELCOME TO THE REAL WORLD...
9-18-2009 @ 11:43AM
Ken Siemers Sr. said...
Just like the department of energy, every department created by big government eventually forgets what it was meant to do and starts a life of it's own. For example, If our social security were never used for projects it was never ment to be used for, it would be up to it's neck in money and not in any kind of danger of going bancrupt. Now, thanks to the interference of our government officials, we'll not have it for our children and grandchildren. Now as an afterthought, how do you think they'll handle a national healthcare plan? Any questions????
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9-18-2009 @ 11:50AM
jack said...
The comment above, is right on, and correct. If our Government wastes this much money, on a Department, that does nothing, how can we trust the Government with our money. There is so many Departments that do the same thing, and they still have a budget. DEA, ATF, FBI, DHS, and the lot. This is an example of just 4 Departments that all do the same job.
When our Government passes the Healthcare Bill (and they will, even if we want it or not), within 3 years, there will be more Departments. We already have Health and Welfare, Department of Health, and many more, we do not even know about.
Why should we trust what any Government Department, when they tell us, everything is getting better, when the next (sometimes the same) day, a report states something different.
Our Government has failed us, and we have to do something about it.
OF THE PEOPLE, BY THE PEOPLE, FOR THE PEOPLE!
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9-18-2009 @ 11:54AM
tom said...
nations debt is almost 12 trllion dollars - interest cost approx 500 billion a year. do you know what our next nations problem will be?? when interest rates go up and our nations interest payment is 2 trillion a year who will be able to pay that ?
gives you all something else to worry about!!
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9-18-2009 @ 11:56AM
DAVO said...
HERE WE GO AGAIN REARRANING THE DECK CHAIRS ON THE TITANIC.
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9-18-2009 @ 12:05PM
BELLCORD said...
IT MIGHT BE NOTED THAT FHA HAS BEEN ONE HUGE PROFIT-MAKER FOR UNCLE SAMMY FOR OVER 70 YEARS NOW...YUP, NEVER LOST MONEY AND ALL THOSE FEES GO RIGHT BACK TO THE TREASURY AT THE END OF THE FISCAL YEAR ..AND OH, FHA CHARGES AN ORIGINAL FEE (NOW 31/2%) AND 1/2 % ANNUAL PAID IN THE MORTGAGE PAYMENT..DO GET AN ADVISOR WHO KNOWS FHA ,DEAR LITA...
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9-18-2009 @ 12:09PM
Davey Rockyfeller said...
Oh the fun is getting better and better! The depression is over! Green shoots! Goldman Sachs just passed out another 11 billion in bonuses! Yeah. The banksters have ALL the money, they print the stuff. What happens when the trillions they printed hit the streets? Inflation, dollar crash, commodites soar, food prices go sky high, Police state! God I hope not. Dollar is on life support though,silver and gold, real commodities, no paper currency has lasted. The Chinese are urging all their citizens to buy silver and gold at their banks on TV and not allowing the export of silver, and are now the largest gold producer in the world. Americans have been sold out by their own greed I suppose.
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9-18-2009 @ 12:17PM
jack said...
The Americans are to blame. We elected all the Washington Officials, and they created this mess. We followed blindly, and obeyed there every wish. We have to accept the blame, and move to change this.
WE THE PEOPLE DEMAND OUR GOVERNMENT TO OBEY "OF THE PEOPLE, BY THE PEOPLE, FOR THE PEOPLE"
9-18-2009 @ 12:15PM
thinksoutsidebox said...
Wasn't Obama's stimulus plan meant to stop this type of thing? I think it was... Just shows the complete failure of this package..
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9-18-2009 @ 12:29PM
Don said...
Strange, I don't anyone that got bailed out by the Housing folks, so where did the money go?
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9-18-2009 @ 9:30PM
pete said...
Wait a minute, wait a minute!
Didn't I read in this column yesterday that the government had a $2 TRILLION "profit?" Haven't the media been telling the worker bees in the U.S. that the depression was over, and it was all obama's doing, all by himself?
What's going on here? Is the media trying to control the minds of the people again, just like they did to condemn all things Bush?
Something here stinks like last months fish, and it smells worse every day. People are onto the media and their liberal bias. Speaking of which, if you haven't read the book "BIAS" by dan rather's good friend Bernard Goldberg, my I suggest you do so are your first opportunity. It confirmed what I'd long suspected. If it had been by somebody inside government, big tobacco, big pharma, Enron, or something like that, it would have been touted all over the media as a "first class whistleblower story of insiders and how they control the thought processes of the public."
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9-18-2009 @ 2:08PM
JEFF said...
START THE PRINTING PRESSES. MAKE THEM SOME MORE MONEY. LETS SEE, FOR EVERY NEW DOLLAR PRINTED IT CUTS THE VALUE OF AN EXHISTING DOLLAR IN HALF... OH WELL, THE COUNTRY IS DOOMED ANYWAY AND THE DEMOCRATS DON'T CARE IF WE ALL DIE.
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9-18-2009 @ 3:59PM
clem said...
we could have the treasury print our currency, and give china our federal reserve notes. after all i can't find out what branch of our three branches of goverment the fed belongs to. it is like it is a private bank, and if you google / bing the fed board members you would think it is part of the IMF or bank of england
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9-18-2009 @ 4:24PM
Actionhero said...
Sounds to me like the government should shut the FHA down. I mean the banks get shut down for not having enough assets. So shut these guys down for the same reason.
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9-18-2009 @ 10:31PM
jmgair said...
All they need to do is ask Barney Frank, Maxine waters & ACORN to get them more funds and the shortage will be solved. You must remember that Obama's stimulus plan was meant to prevent this from happening so hey Barry, what happened to that promise ?? This is what happens when Americans support and vote for a community organizer from Chicago to be president of the USA who has ZERO economic experience other than having had his entire career paid for and handed to him by who knows who since he has not shared any of these details with America. So how is that " Hope & Change " thing working for you now America ???
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9-18-2009 @ 4:54PM
QUENTIN said...
This will only hurt small business's Stevens seems to still be working for his former employer Long & Foster who brokers loans themselves.
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9-18-2009 @ 5:15PM
luette said...
We have just over 500 people running this country...IF they wanted to fix Social Security, they could...IF they wanted to fix Medi Care they could. If they wanted FAIR taxes, we would have them. If they want us in Afganistan we are...If they wanted to do anything more then accumulate MORE dept...they could....
and If they wanted to listen to the AMERICAN people (their BOSS)......?
We hired these idiots.....they are OUR employees, and as far as I can see-all they need now is "YOUR FIRED"
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9-18-2009 @ 6:25PM
zxcvb said...
The economy will bounce back. Government spending created many jobs in the Great Depression, Hoover Dam for example. Some paint that as socialism, others as a wise public investment -- found a cool site; Balkingpoints ; incredible satellite view of earth
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