FHA Bailout? Probably Not

HUD just released its Annual Financial Report to Congress.  The report stated the health of their Mutual Mortgage Insurance (MMI) fund.  In the event that a home owner defaults on their mortgage, the FHA insurance is what pays lenders back.  Per the HUD report, “FHA is expected to sustain significant losses from loans insured prior to 2009, and thus its capital reserve remains below the congressionally mandated threshold of two percent of total insurance-in-force.”  FHA predicts the losses due to this riskier financing grew by $1.8 billion over the past year to $14.1 billion.  Down from $4.7 billion just last year, the FHA fund currently has $2.6 billion in cash reserves.

“It would take very significant home price declines to create a situation in which the portfolio would require any additional support,” said Carol Galante, acting commissioner. “There is no evidence or widespread prediction that home prices are going to decline to the kind of levels requiring a bailout,” she said.

Since 2010, the FHA has:Worked with more than 1.2 million households and insured $218 billion in single-family mortgages.The FHA has assisted more than 585,000 families to become homeowners for the first time. This number is 56 percent of all first-time buyers in the United States.  FHA has Refinanced 440,000 households to lower interest rates, saving an average of $160 per month.

HUD’s report to Congress on the Financial Status of the MMI Fund, and FHA’s Fiscal Year 2011 Financial Status Briefing are available on HUD’s website, www.hud.gov.

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