FHA's Galante Says $1.7 Billion Treasury Draw Doesn't Reflect State Of Insurance Fund

Confounded Interest ^ | 09/27/2013 | Anthony B. Sanders

[whitedog57]

It’s official. The FHA is crawling to Treasury for $1.7 billion. That is, more gruel. And the FHA blames senior citizens for their plight.

Washington (AP) — A federal housing agency says it needs a $1.7 billion bailout from the Treasury to cover projected losses in a mortgage programs for seniors.

At issue are reverse mortgage programs, which allow seniors to borrow against their homes for everyday living expenses.

Carol Galante is Federal Housing Administration Commissioner. Galante wrote Congress Friday that her agency will withdraw the money from the Treasury before the fiscal year ends Monday. Congressional approval is not required.

The agency insures mortgages for millions of homeowners. It’s struggling with $5 billion in losses on its reverse mortgage program.

The FHA suffered big losses when many borrowers 62 or older took large payments up front and later ran into financial problems, often due to falling home values during the financial crisis.

UPDATE: *GALANTE: TREASURY DRAW DOESN’T REFLECT STATE OF INSURANCE FUND

LOL!

The White House projected in April that the FHA would face a shortfall of $943 million for the fiscal year that ends on Monday, but the agency said it would wait until the end of the budget year to make a final decision on whether to draw Treasury aid.

Actually, it is the second bailout for the FHA. They got a bailout from the mortgage settlement of $688 million.

How did the FHA get into this situation? Other than blaming it on seniors.

FHA serious delinquencies peaked at 9.42% in Q4 2009 and have slowly fallen to 7.57% by Q2 2013.

fhaserdel

Although shrinking, FHA Serious Delinquencies remain over twice as high as Fannie Mae (yellow) and Freddie Mac serious (green) delinquencies which are at 2.77%.

fhfannieserdel

And if we look at Fannie Mae and Freddie Mac serious delinquencies WITHOUT credit enhancements, the comparison is more striking. FHA has 3 times the serious delinquency rate than Fannie Mae and Freddie Mac.

And remember what happened to Fannie Mae and Freddie Mae. They were placed into conservatorship with the Federal Housing Finance Agency (FHFA) in September 2008.

So, it is all that surprising the FHA is asking Treasury for more gruel? True, Fannie Mae and Freddie Mac were severely undercapitalized. But the FHA has experienced a severe capital shortfall.

The FHA’s private generally accepted accounting principles (GAAP) estimated net worth deteriorated slightly. The estimate for August of the FHA’s GAAP net worth is –$26.68 billion, down from –$25.96 billion in July 2013. The capital shortfall stands at $47 billion (using a 2 percent capital ratio) and $67 billion (using a 4 percent capital ratio).

Of course, the FHA fishes in the risky part of the pond, so to speak. Their domain has traditionally been first time home buyers and minorities with low down payments and relatively low credit (FICO scores).

Look at FHA Serious Delinquencies and the U6 unemployment index.

fhasdu6

Ah the painfully slow employment recovery, coupled with declining real median household income is playing havoc with FHA-insured mortgages.

household-income-monthly-median-growth-since-2000

fhamortgage

fhalowficobook1

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fhalowficobook

For more reading on the FHA’s plight, check out Ed Pinto’s FHA Watch.

UPDATE: Someone of Linkedin said “We are the richest country on earth. Why can’t everyone one a home?” What is the problem with renting?

[whitedog57]

FHA blames seniors. Priceless!!!!!!!!!!!!!!!!

[hal ogen]

Well, FHA...F U!

[silverleaf]

I am confused
Once you take a reverse mortgage there are no payments to the mortgage company, the mortgage holder pays the borrower

So now blame the borrower for falling house value?

duh?