Foreclosure Home News and Opinion FHA Faces $1.3 Billion Capital Shortfall

FHA Faces $1.3 Billion Capital Shortfall

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The Federal Housing Administration, which in September received a first-ever $1.7 billion bailout from the U.S. Treasury, said an audit of its finances has found it still faces a $1.3 billion capital shortfall.

“Throughout the economic crisis, FHA continued to fulfill its mission of stabilizing the housing market and providing responsible  access to mortgage credit,” said Carol Galante, the FHA Commissioner, in a prepared  statement.

In September, the FHA’s head told Congress the agency needed bailout money to stabilize its long-term finances and cover potential losses on the huge volume  of low-down payment subprime mortgage it insured from 2007 to 2009. The September bailout was the first time the 79-year-old FHA — created during the  Great Depression to keep home lending flowing — required taxpayer funding.

The FHA does not make loans but instead insures lenders against home loan losses.

The FHA is financed by mortgage insurance premiums charged to homeowners and has been self-sustaining through its history. The FHA insures a portfolio of over $1 trillion in mortgages. Since the housing market collapse in 2007, it  increased its share of the home loan market, more than tripling its loan portfolio. The agency now insures almost one-third of all U.S. mortgages, up from about 5 percent in 2006.

In February, when the Obama administration releases its annual budget, the administration will determine whether the FHA will need to access its Treasury credit line.

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