Despite the housing market continuing to recover, FHA’s low reserve numbers could mean that taxpayers end up being the ones to help bail them out. According to the Federal Housing Administration, their reserves to cover losses recently dropped into the negative territory for the fiscal year ending September 30.
Mortgage insurance through the FHA surged between 2007 and 2009 during the recession. Currently, the agency has $30.3 billion in cash reserves to cover $46.6 billion in projected losses. That’s a shortfall of $16.3 billion, and for the first time in its 78-year history, the FHA could have to ask the U.S. Treasury to cover their deficit.
Housing and Urban Development (HUD) Secretary Shaun Donovan notes, “With its dual mission of providing access to homeownership for underserved populations and supporting the housing market during tough times, there is little doubt that FHA helped prevent a much deeper crisis.”
FHA says they will attempt to bolster their reserves by increasing the premiums they charge to home owners to insure their loans. A final determination on using U.S. Treasury funds to improve the situation has not yet been reached and could hinge on whether the housing market continues to improve.
For more information on this topic, click here.