A previously undisclosed stress test has revealed the Federal Housing Administration’s projected losses on defaulted loans could reach as high as $115 billion over 30 years, according to the Wall Street Journal.
Emails reviewed as part of an investigation by the House Oversight and Government Reform Committee, chaired by U.S. Congressman Darrell Issa (R., Calif.), reveal that the FHA urged private contractors not to publish an analysis showing the government mortgage insurer could face a $115 billion shortfall.
“Documents and communications produced to the committee … clearly show that FHA was determined to avoid disclosing the magnitude of the FHA’s capital inadequacy,” wrote Issa in a letter to FHA commissioner Carol Galante. “The deteriorating fiscal state of FHA continues to be of great concern to the committee. The documents obtained by the committee appear to suggest that senior officials at FHA may have deliberately withheld important information from Congress about the FHA’s performance under severe economic stress, and political factors may have influenced the removal the Fed’s (stress test) results from the final actuarial report.”
Last November, the FHA disclosed that under current conditions, total losses could lead it to rely on as much as $13.5 billion in taxpayer aid, the first such subsidy in its 79-year history. In April, the White House’s budget office estimated that the FHA would require a $943 million bailout this year alone, due to losses in its reverse mortgage program. Now we learn that the forecast was significantly worse than the agency’s annual report release last November.
The cash-strapped FHA insures $1.1 trillion worth of mortgages, and backs about one third of the all U.S. loan originations for home purchases, almost quadruple the 4 percent share it covered in 2007. About 10.5 percent of loans insured by the FHA are delinquent, according to the most recent Mortgage Bankers Association National Delinquency Survey.
Increasingly, it appears that the FHA could turn out to be a growing burden on taxpayers along the lines of Fannie Mae and Freddie Mac, the mortgage finance firms the government seized in 2008. Fannie and Freddie have cost U.S. taxpayers $137 billion in bailouts.
FHA-insured loans have such a high delinquency rate because borrowers only have to put down 3.5 percent as a down payment to get an FHA-insured mortgage loan, which most private lenders won’t offer without a government guarantee.
Critics of the FHA have been warning for months that the troubled agency is insolvent and headed towards a taxpayer bailout.
Supporters have argued that everything is fine at the FHA and delinquencies and foreclosures will decrease as home prices continue to rise.
But it’s becoming abundantly clear that things may be worse than the FHA bureaucrats claim.