FHA audit delay could mean agency will need bailout
Filed under: Company News, Economy, Investing
On Wednesday, the Federal Housing Administration was supposed to release its independent audit determining the soundness of the agency. Many have questioned that soundness because, as of Oct. 1, its reserve fund dipped below the required 2 percent of the agency's outstanding loans for the first time in its history. On Tuesday night, the agency abruptly canceled the release of that audit report, citing problems with the risk scenarios, according to The Washington Post.Obviously, those problems stem from the fact that the independent auditors determined that the risks to the agency were higher than FHA Commissioner David H. Stevens has admitted to publicly. What's being questioned now is whether or not the FHA can rebuild its cash reserves without a bailout from the government. FHA has faced an increasing number of defaults as its loan volume expanded.
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, for which premiums are paid monthly by borrowers whose loan principal is more than 80 percent of their home's value, 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.
The FHA essentially has two options to raise cash: 1) a government bailout, or 2) an increase in the insurance premiums borrowers must pay at closing. Stevens, so far, has said he doesn't intend to use either option. Instead, he 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. The FHA has never had a risk officer in its 75-year history.
Even if he does none of these things, an internal audit showed that the agency's reserves will rebound in two or three years, so there may be no need for a government bailout. The internal audit used projections based on future home prices, interest rates and the volume and credit quality of the FHA's business.
The delay in releasing the external audit, done by Integrated Financial Engineering of Rockville, Md., was likely because it showed that the internal audit was too optimistic. According to the article in The Washington Post Thursday, IFE is running additional scenarios to test the accuracy of its final report. These additional tests would not have been requested unless the new report had concluded that the FHA faced greater risks to its solvency than previously reported.
Let's just hope that IFE is not just looking for a scenario that will match the FHA's internal audit and make its final numbers look better. It doesn't help anyone if the FHA continues to hide its problems until a bailout is desperately needed.
Lita Epstein has written more than 25 books, including Reading Financial Reports for Dummies and Trading for Dummies.
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Reader Comments (Page 1 of 2)
11-05-2009 @ 10:54AM
ij70 said...
I detect a lack of transparency.
I bet one shiny penny that they will need a bailout. Who will bet against me?
Reply
11-05-2009 @ 2:09PM
Fletch said...
The video is grainy but the audio is what is important. Listen to what was planned in 1992, and what we have today!
http://video.google.com/videoplay?docid=-6642758020554799808&ei=kTzySr_2CZ7cqAKS_Y2yAg&q=world+wilderness&view=2#
11-05-2009 @ 10:09AM
Russb said...
You are wrong!! FHA does collect an upfront fee BUT it also gets a monthly fee!!!!!! Get your S**T straight before you talk! I do FHA loans for a living I Know!!!! So shut up till you know the facts!!
Reply
11-05-2009 @ 11:54AM
All Star Caps said...
Up front fees, lack of "real" oversight, and no accountability of "pre-qualifications" coupled with derivative based investment brokering of Subprime lead to the single greatest fleecing of the world economy in history. The Subprime Ponzi scheme was the spear head that pierced the heart of any stabilized financial possibilities for the middle class. See How Here........
http://www.break.com/usercontent/2009/4/SubPrime-Slime-705089.html
11-05-2009 @ 12:56PM
david hulsey said...
you are right. it is called PMI.
11-05-2009 @ 10:56AM
Unemployed said...
Great another Bail-out, help again from the tax payers! When is the Unemployed going to get help from these Banks foreclosing on them? We DID NOT ask to be laid off our jobs, now we have to face loosing our homes! Wake up Washington a Mega wave of foreclosures is coming your way if the Unemployed are not helped! How can you continue to pay a mortgage payment on Unemployment benefits, feed your kids, pay utilities, buy gas etc. etc.??? Bail out the people who really need the help!
Reply
11-05-2009 @ 10:57AM
Paul said...
NO More Bailouts. We will now start Challanging any Further Bailouts of Housing in the Courts and elsewhere
Reply
11-05-2009 @ 10:46AM
Jules said...
This was written by Sherry Hackett, Buddy Hackett's widow........
"WE NOTICED"
President Obama:
Today I read of your administrations' plan to re-define September 11 as a National Service Day. Sir, it's time we had a talk.........
During your campaign, Americans watched as you made mockery of our tradition of standing and crossing your heart when the Pledge of Allegiance was spoken. You, out of four people on the stage, were the only one not honoring our tradition.
YES, "We noticed."
During one of your many speeches, Americans heard you say that you intended to visit all 57 states.
We all know that Islam, not America has 57 states.
YES, "We noticed."
When President Bush leaned over at Ground Zero and gently placed a flower on the memorial, while you nonchalantly tossed your flower onto the pile without leaning over.
YES, "We noticed."
Every time you apologized to other countries for America 's position on an issue we have wondered why you don't share our pride in this great country. When you have heard foreign leaders berate our country and our beliefs, you have not defended us. In fact, you insulted the British Crown beyond belief.
YES, "We noticed."
When your pastor of 20 years, "God-damned America " and said that 9/11 was " America 's chickens coming home to roost" and you denied having heard recriminations of that nature, we wondered how that could be. You later disassociated yourself from that church and Pastor Wright because it was politically expedient to do so.
YES, "We noticed."
When you announced that you would transform America , we wondered why. With all her faults, America is the greatest country on earth. Sir, KEEP THIS IN MIND, "if not for America and the people who built her, you wouldn't be sitting in the White House now." Prior to your election to the highest office in this Country, you were a senator from Illinois and from what we can glean from the records available, not a very remarkable one.
YES, "We noticed."
All through your campaign and even now, you have surrounded yourself with individuals who are basically unqualified for the positions for which you appointed them. Worse than that, the majority of them are people who, like you, bear no special allegiance, respect, or affection for this country and her traditions.
YES, "We noticed."
You are 9 months into your term and every morning millions of Americans wake up to a new horror heaped on us by you. You seek to saddle working Americans with a health care/insurance reform package that, along with cap and trade, will bankrupt this nation.
YES, "We noticed."
We seek, by protesting, to let our representatives know that we are not in favor of these crippling expenditures and we are labeled "un-American","racist", "mob". We wonder how we are supposed to let you know how frustrated we are. You have attempted to make our protests seem isolated and insignificant. Until your appointment, Americans had the right to speak out.
YES, "We noticed."
On September 11, 2001 there were no Republicans or Democrats, only Americans. And we all grieved together and helped each other in whatever way we could. The attack on 9/11 was carried out because we are Americans.
And YES, "We noticed."
There were many of us who prayed that as a black president you could help unite this nation. In six months you have done more to destroy this nation than the attack on 9/11. You have failed us.
YES, "We noticed."
September 11 is a day of remembrance for all Americans. You propose to make 9/11 a "National Service Day". While we know that you don't share our reverence for 9/11, we pray that history will report your proposal as what it is...a disgrace.
YES, "We noticed."
You have made a mockery of our Constitution and the office that you hold. You have embarrassed and slighted us in foreign visits and policy.
YES, "We noticed.."
We have noticed all these things. We will deal with you. When Americans come together again, it will be to remove you from office.
Take notice.
Reply
11-05-2009 @ 1:12PM
koi50lover said...
I would like to see a list of the drugs she is on.
11-05-2009 @ 11:09AM
docandmillie@aol.com said...
America is like the titanic, we have hit a financial iceberg and the government is the band, they keep playing music as if everyone will be fine. SEE YOU ALL AT THE BOTTOM.
Reply
11-05-2009 @ 12:00PM
Cynthia J. said...
Exactly!! This Economy is not recovering. Wall Street, Congress and the White House (the Powers that be) bunch don't want we Peons to panic or maybe do something to get this Society back on track. Get involved (locally). Work to throw out the thieves and liars. Expose them for who they really are. Demand equality and equity. Quit believing the Lies being thrown to us like a Bone. It's time for REAL CHANGE (and this time we demand it)!
11-06-2009 @ 8:24AM
WF said...
FHA is the new subprime! All banks and brokers push their risky loans FHA. Why not? The taxpayer is on the hook if the loan does not perform. Large banks only keep the cream-of -the -crop and pass the risky loans to FHA. The bank still retains the servicing rights in most cases collecting a healthy income.
Reply
11-05-2009 @ 11:15AM
rann948 said...
I think that Barney Frank should get the bill for this. Mr. "poor people deserve to buy homes too, who cares if they don't have jobs or credit, or anything." Bush tried to stop it, but got shot down by Bwaney and his ACORN friends for being "racist" and against poor people.
Maybe ACORN will help him pay the bill.
Reply
11-05-2009 @ 11:16AM
Daryl said...
Americans, just read the writing on the wall, it's right in front of your face! The Democrats took over in 2006! That is when our economy went down and has been declining ever since. Look it up, it's true. Since 2006 FHA loans have "quadrupled"! That should be a clear sign that the Dems forced FHA to loosen up and give more loans to unqualified borrowers. That is clearly evident by the over 15% of FHA loans that are delinquent and the over 8% of the loans that defaulted. These aren't just coincidences folks and pointing the finger at former Pres. Bush doesn't cut it! It is all right in front of your face, all you have to do is open your eyes and do some research for yourself!
Reply
11-05-2009 @ 12:54PM
vic said...
2012 we must vote pelosi,franks,dod,OUT.and impeach obama now befor it's to late.
11-05-2009 @ 1:02PM
vic said...
I ment 2010. Sorry
11-05-2009 @ 1:04PM
Frank said...
I hear the FHA requires as little as 3% down and they have tons of them like this. That means those loans made in the within the last years are already underwater. Thank you Mr. Frank, Ms. Pulloosly and of course, Mr. Bammy from the great state of Illinois.
Reply
11-05-2009 @ 1:11PM
fpeirce said...
Don't worry - the Mesiah Obama will save us. Long live Hope and Change.
Reply
11-05-2009 @ 1:44PM
Ken Siemers Sr. said...
OK, enough of this bailout crap. It seems like there is no incentive to succeed and be profitable any more. Now that all you have to do is cry to the Obama socialist party and bingo, you get billions. Does anybody really believe that the people who advocate the bailouts aren't getting paid off. Our current government is so crooked it stinks. We used to talk in millions, then it went to billions and now it's trillions. How easy it must be to slip away with a couple of million without ever being detected. Wake up America, you're getting your pockets picked and the thieves aren't even being carefull any more.
Reply
11-05-2009 @ 2:08PM
Frank said...
Ken you are so right. Joseph Goebbels (Propaganda Minister for Hitler) used to have a favorite saying: "The bigger the lie the easier it is to swallow."