FHA to Take First Ever Bailout

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With the changes that took effect at the start of October 2013 and the growth in the housing market these problems should not be reoccurring in the future. Please read the article below.

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The Federal Housing Administration (FHA) will be accepting a bailout of more than $1 billion to make up for losses sustained from the agency’s legacy books and its reverse mortgage program.

Following reports last week that FHA’s financial situation would require a Treasury draw in the neighborhood of the Obama administration’s $943 million forecast, Commissioner Carol Galante revealed in a letter to the Senate Banking Committee that the agency is taking an appropriation of approximately $1.7 billion.

“This amount is higher than the estimate provided in the President’s budget because of a decline in FHA endorsement volume in the last few months of the fiscal year—consistent with the trend in the broader housing market in response to higher interest rates,” Galante explained in the letter. “It is also consistent with FHA’s goal of reducing its footprint in the market.”

The majority of damage inflicted to FHA’s Mutual Mortgage Insurance Fund (MMIF) came from losses on loans insured from 2007-2009, which—according to an actuarial report released last year—“continue to place a significant strain on the Fund with $70 billion FHA claims attributable to loans insured in those years.”

Also damaging to the fund was the agency’s Home Equity Conversion Mortgage (HECM) program, which was consolidated earlier this year as part of an effort to bolster FHA’s finances. Other changes include an increase in premiums and a requirement for mandatory underwriting on riskier loans.

In her letter, Galante noted the necessary appropriation “is an accounting transfer and does not reflect an up-to-date view of the MMIF’s performance, its long-term fiscal health, or its current cash position,” saying the calculation does not incorporate recent improvements in loan performance or current economic factors.

To read the complete article please use the link below.

First Ever Bailout

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