Taxpayers may have to pump as much as $1 billion into the Federal House Administration at the end of the month to keep the mortgage insurer afloat, reigniting lawmakers' calls for changes in a housing finance system that's still dominated by the federal government five years after the housing bubble burst.
“No reasonable person could believe that we should continue along with the current housing finance system in this country when three separate entities – Fannie, Freddie, and, according to reports, now the FHA – have all had to come to the taxpayer for billions of dollars in bailout funds,” said Sen. Bob Corker, R-Tenn., a leading voice in the push to reduce the government's role in the mortgage business.
The Wall Street Journal and other publications reported late Wednesday that the FHA, which insures mortgage lenders against losses on loans, could require as much as $1 billion from taxpayers to remain afloat when the fiscal year ends Tuesday.
The FHA's financial problems stem from losses it suffered insuring loans that went bad because of the housing crash and ensuing recession. The first hints that the agency was going to need assistance came last spring when President Obama allocated nearly $1 billion in his budget proposal to cover FHA losses on its reverse mortgage insurance portfolio.
The FHA can receive taxpayer funds without congressional approval. It has a line of credit with the Treasury from which it can draw, although it never has before.
An independent actuarial report released last November projected a $16.3 billion deficit in the FHA's insurance fund for the 2013 fiscal year, an estimate that has since decreased as the agency raised additional capital through new business.
Some critics of the FHA assert that the agency could face far larger losses on its $1 trillion-plus insurance portfolio if economic conditions worsen.
Ed Pinto, who monitors the FHA for the conservative American Enterprise Institute, doesn’t expect the agency to require additional taxpayer assistance after this year. But he maintains that the FHA has a negative net value of $27 billion when it's assessed using private-sector accounting methods, and warns that “it’s reasonable to expect” that the FHA would need additional aid if another recession wracks the country.
Lawmakers are using the FHA's shortfall to reignite interest in an overhaul of the nation's housing finance system.
“Hardworking American taxpayers are sick and tired of having to bail out Washington’s failed housing policies,” said House Financial Services Committee Chairman Jeb Hensarling, R-Texas, the author of a bill to end Fannie Mae and Freddie Mac and limit the FHA’s role to insuring mortgages only for qualified low-income borrowers. His bill, called the PATH Act, was approved by his committee in July largely along party lines.
In the Democratic-led Senate, the Banking Committee approved a bipartisan plan from Chairman Tim Johnson, D-S.D., and Sen. Mike Crapo, R-Idaho, that would shore up the FHA’s finances and strengthen lending standards. Another bipartisan group of committee members, led by Corker and Sen. Mark Warner, D-Va., have written a bill that would also wind down Fannie and Freddie.