Executives at the US Federal Housing Administration (FHA) continue to insist that the mortgage insurer is not in trouble. Available data suggest otherwise.
As the Washington Post reported on Tuesday, the FHA’s emergency reserve fund has fallen to a 7-year low, below the 2 per cent threshold of its outstanding loans, which it is required by law to maintain:
The Federal Housing Administration, which has played a crucial role supporting American home buyers after the collapse of the mortgage market, has burned through a huge cash reserve in less than a decade and could soon wind up with what amounts to an automatic taxpayer bailout if the agency’s fortunes don’t improve, according to a review of FHA finances.
To be clear, if the losses continue — and all indications are that they will — the FHA will be granted a line of credit with the Treasury, which would put more pressure on the ballooning US deficit and ultimately, taxpayers.
And as the Post pointed out, that emergency infusion from the Treasury will not be subject to congressional approval:
The agency, which collects premiums from borrowers who take out FHA-insured mortgages, has been automatically drawing down on money it deposited with the Treasury Department when the FHA was flush with cash. Those funds have dwindled as the FHA’s losses grew. If the losses continue unabated, the FHA would still receive money from Treasury.
“It is absolutely a myth that they would have to go to Congress for money,” said Marvin Phaup, a former budget analyst at the Congressional Budget Office and now a budget expert at Pew Charitable Trusts. “The FHA has permanent authority to get money from the Treasury because it is backed by the full faith and credit of the federal government.” We’re not convinced being backed by the full faith and credit of the federal government — see also Fannie Mae and Freddie Mac — is such a ringing endorsement these days.
Related links:
House Republicans warn Obama admin on troubled housing agency – Reuters
Questions on Accuracy Delay Much-Awaited F.H.A. Audit – NY Times
FHA Digging Out After Loans Sour – WSJ