Housing Bubble Catches Up with FHA

November 16, 2012 by Paul Ausick

Source: Thinkstock
The U.S. Federal Housing Administration (FHA) has posted a $16.3 billion deficit at the end of the 2012 fiscal year and may need to draw funds from the U.S. Treasury for the first time in the agency’s 78-year history. The FHA may not be able to cover the losses on its $1.1 trillion loan portfolio if current projections are correct.

The agency lays the blame for the shortfall on loans that allowed home sellers to cover the down payments on behalf of the buyers, typically by inflating the value of the property. That practice was banned by Congress in 2009, but by then the train had already left the station.

The FHA proposes to raise the premium it charges borrowers by 10 basis points a year and to sell 10,000 delinquent loans per quarter. The agency also plans to offer more relief to some borrowers. The U.S. Housing and Urban Development Secretary, Shaun Donovan, said, “This set of measures will reduce the likelihood that FHA will need to tap into Treasury assistance next September.”

Paul Ausick

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