FHA’s Solvency Teetering in 2012

by Houston Agent

The FHA's solvency argument received tacit support from the government's 2013 budget.

The finances of the Federal Housing Administration (FHA), and the affects that delinquent loans have had on them, have been a constant source of media coverage the last couple of months, with some predicting the future bailout of the agency and others seeing such alarms as overblown.

The government’s 2013 budget, though, which is due out next week, falls between the two viewpoints in its own projections for the FHA, predicting a solvency for the agency that just barely maintains its positive standing for the year.

According to a National Mortgage News piece, there have been other government reports that have called the FHA’s finances into question. First, in November, the Department of Housing and Urban Development (HUD) released an audit of the FHA’s mortgage insurance fund, reporting the agency has $2.5 billion of capital for its $1 trillion portfolio, or, just a 0.24 percent capital ratio.

In addition, HUD found delinquencies at the agency worsening, with seriously delinquent loans increasing from 636,778 on Sept. 30 to 716,786 at the end of 2011, or, 9.73 percent of its loans.

The FHA’s insurance fund, which it stocks with monthly mortgage insurance fees that are charged on its loans, loses roughly $80,000 on each delinquent loan, according to analysts cited by National Mortgage News. The story also cited FHA critic Ed Pinto, who wrote in a recent white paper that the fund’s capital shortfall could reach $53 billion.

All of the delinquent loans in question, though, are housing-boom relics from 2008 and earlier. All FHA policies from the last two years, it maintains, have featured FICO scores of 700 or higher, and the seller-downpayment loophole, in which the seller of a property would contribute to the buyer’s downpayment, was discontinued three years ago, as such assistance was a chief inhibitor of faulty, delinquent-prone loans.

The FHA has maintained its soundness, and those recent revisions to its mortgage business (including a new bill, just passed on Wednesday, specifically aimed at its finances), would suggest a brighter future for the agency.

What do you think? Will the FHA weather the storm and emerge in 2013 better than ever? or will the ghosts of its delinquent loans catch up with it?

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