The Federal Housing Administration:
The Federal Housing Administration has been hit so hard by the mortgage crisis that for the first time, the agency’s cash reserves will drop below the minimum level set by Congress, FHA officials said.
The FHA guaranteed about a quarter of all U.S. home loans made this year, and the reserves are meant as a financial cushion to ensure that the agency can cover unexpected losses.
“It’s very serious,” FHA Commissioner David H. Stevens said in an interview. “There’s nothing more serious that we’re addressing right now, outside the housing crisis in general, than this issue.”
Until now, government officials have warned that the agency could be forced to ask Congress for billions of dollars in emergency aid or charge borrowers more for taking out FHA-insured loans if the reserves fell below the required level, equal to 2 percent of all loans guaranteed by the agency.
Both options are politically unpalatable. Congress and the public are weary of bailouts after the government spent hundreds of billions of dollars rescuing banks; insurance companies; automakers; and the mortgage finance giants, Fannie Mae and Freddie Mac. Raising premiums for borrowers could increase the cost of buying a home just as a wounded housing market is showing signs of life.
Stevens said that such drastic actions are not needed. He said he is planning to announce Friday several measures that should help the reserves rebound quickly.
The FHA, which is part of the Department of Housing and Urban Development, insures home mortgages against losses, thus helping prospective borrowers obtain loans. It uses the insurance premiums paid by these borrowers to pay for mortgage defaults. Since its creation in 1934, it has never used taxpayer money to cover losses at its flagship home-buying program. But rapidly rising defaults have burned through the agency’s reserves, raising the prospect that it would have to take dramatic action.
Get ready to be screwed again.
