Wednesday, November 16, 2011

Government auditor: FHA at financial risk

I previously posted about an American Enterprise Institute (AEI) report claiming that the Federal Housing Administration (FHA) could be at financial risk. Now it's not just partisan think tanks making the claim. It's the FHA's own government auditor:
Chances are nearly 50 percent that the Federal Housing Administration will need a bailout next year if the housing market deteriorates further, the agency’s independent auditor said in a report released Tuesday.

The F.H.A., which offers private lenders guarantees against homeowner default, has just $2.6 billion in cash reserves, the report found, down from $4.7 billion last year.

The agency’s woes stem from the national foreclosure crisis. In the last three years, the F.H.A. has paid $37 billion in insurance claims against defaulting homeowners, shrinking its cash cushion.

The auditors determined the agency’s level of supplemental cash reserves by projecting losses on its mortgage portfolio and counting them against expected premium revenue. This year, the audit found that the F.H.A. supplemental reserve was less than one-quarter of a percentage point of its current portfolio: $2.6 billion against a $1.1 trillion mortgage portfolio, as of Sept. 30. Legally, the housing agency is required to keep a 2 percent cash buffer, a target it has not met since 2008.
The FHA is paying out $37 billion per year, but they only have $2.6 billion in cash reserves? That $2.6 billion of cash reserves insures a $1.1 TRILLION mortgage portfolio? Really? What could possibly go wrong?

2 comments:

  1. JohnnyBrooksHomes.comNovember 25, 2011 1:01 AM

    Our government need not bailout any other entities. if you can not balance your books, then shut the doors

    ReplyDelete
  2. Turn the lights off. Who is Brock Merck

    ReplyDelete