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Audit Says FHA Faces $16 Billion Loss

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On Friday, the U.S. Department of Housing and Urban Development (HUD) submitted its annual report to Congress on the financial condition of the Federal Housing Administration's (FHA) Mutual Mortgage Insurance (MMI) Fund -- the money drawn upon to compensate the FHA, when a homebuyer defaults on an FHA mortgage.

Disturbingly, HUD's report showed that, as a result of several factors, including declines in home values and mortgage refinancing at lower and lower rates, the value of the MMI Fund has now fallen to negative $16.3 billion.

HUD notes that the value does not count $11 billion in expected capital accumulation through the end of fiscal year 2013, and that HUD will be taking "additional actions designed to contribute billions of dollars in added value to the MMI Fund over the next several years." For these and other reasons, HUD argues that the FHA does not necessarily lack cash to pay insurance claims, nor will it need to seek a bailout from the Treasury Department. (Although HUD stresses that "all federal loan and loan guarantee programs have [authority] to draw funds from the Treasury ... to cover estimated losses.")

Nonetheless, Acting FHA Commissioner Carol Galante noted that:

We take the findings of the independent actuary very seriously. We will continue to take aggressive steps to protect FHA's financial health while ensuring that FHA continues to perform its historic role of providing access to homeownership for underserved communities and supporting the housing market during tough economic times.

HUD said in a statement that it expects to return FHA's MMI Fund to a positive net balance "within the year."


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