President’s 2014 Budget Foresees $943 Million FHA Bailout

The Obama administration’s proposed fiscal budget for 2014 estimates that the cash-strapped Federal Housing Administration (FHA) will need a $943 million taxpayer bailout this year to cover losses from shaky loans the agency insured as the housing  market collapsed in 2007.

This would be the first such bailout in the 80-year history of the FHA.

Last fall, concerns about the FHA’s finances increased when an independent audit found that the agency, which has more than $1 trillion worth of loans in its portfolio, had burned through it capital reserves because of bad  mortgages, and would need up to a $16.3 billion infusion of cash from the Treasury.

Lawmakers are split along party lines about how to overhaul the FHA. The likelihood that the agency would need a taxpayer bailout  drew sharp criticism from House Republicans, including Jeb Hensarling (R-Texas), chairman of the House Financial Services Committee, who claims the government’s role in the housing market should be dramatically reduced.

“If the FHA were a private financial  institution, likely somebody would be fired, somebody would be fined or the  institution would find itself in receivership,” said Hensarling. “Instead, the FHA is merrily on its way to becoming the recipient of the next great taxpayer bailout. It’s outrageous.”

Democrats said the agency must be allowed to preserve the affordable home loans it provides to first-time homebuyers and  minority communities.
“FHA, while still under stress from  legacy loans, has made significant progress and is on a sound fiscal path forward,” said Carol  Galante, the FHA Commissioner. “We are continuing to act and do everything possible to ensure that these legacy loans are corrected.”

The FHA is a major source of funding for first-time home buyers and people with modest incomes. It backs $1.1 trillion in loans.

“The performance of FHA loans is mixed,” said Jay Brinkmann, MBA’s chief economist and senior vice president of research in a written statement. “While the foreclosure starts and foreclosure inventory percentages both fell, the delinquency percentages generally remained flat or increased slightly, particularly the  percentage of loans 90-days or more past due. However, 44 percent of the FHA loans that are seriously delinquent were made in the years 2008 and 2009, while loans made in those years represent a smaller share of FHA’s overall book of  business.” 
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