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Could FHA require bailout?

By Judy Martel ·
Monday, June 10, 2013
Posted: 6 am ET

Projected losses over 30 years of the Federal Housing Administration, or FHA, could be much worse than originally estimated, according to the findings of a congressional committee. That's causing some to wonder if another government bailout will be required.

An audit by the House Oversight and Government Reform Committee, headed by Rep. Darrell Issa, R-Calif., says losses could be up to $115 billion in a worst-case economic scenario. That's in contrast to a report by independent auditor Integrated Financial Engineering Inc. of Rockville, Md., which estimated losses to the FHA of $64.5 billion. Congress requires the FHA to keep enough reserves to cover projected losses or to accept a government bailout if it can't.

Too optimistic?

The report by Issa's committee says the independent audit lacked information that would have increased the projected losses. In a letter to FHA Commissioner Carol Galante, Issa writes that emails released to the committee show the FHA may have encouraged its auditor not to publish the worst-case projections.

"The deteriorating fiscal state of FHA continues to be of great concern to the committee," Issa said in the letter, obtained by The Wall Street Journal.

In 2008, the government took control of mortgage giants Fannie Mae and Freddie Mac after they suffered huge losses from the housing market crash. So far, taxpayers have paid nearly $190 billion to keep them afloat, though both companies now show a profit as home prices rise.

The FHA guarantees mortgages against losses for lenders. It backed approximately a third of home loans underwritten last year. Since the housing crash, the FHA has been increasing its reserves by raising insurance premiums and underwriting fees. The money coming in could help it avoid a bailout.

Keep up with your wealth and mortgages, and follow me on Twitter @JudyMartel.

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June 13, 2013 at 8:45 pm

I'm over it! Bailout homeowners struggling to pay their mortgages, instead of pretending to help them,just do it. Lower those mortgage payments for struggling homeowners and I guarantee our economy will move faster than a senator running from his obligations. This information is only a surprise to those who aren't living in the real world!

June 13, 2013 at 11:32 am

let them go broke, or put them in charge of health care, the government does everything so well and just wants to help the working families.