Sep
18
Sept. 18 (Bloomberg) — The Federal Housing Administration, the government agency that insures more than 20 percent of U.S. single-family mortgages, said its reserves will fall below congressional requirements as home prices decline.
The FHA isn’t in danger of failing, and the mortgage insurance fund will likely recover on its own within two years without any policy changes, Commissioner David H. Stevens told reporters on a conference call today. FHA is required by Congress to maintain a loan reserve ratio of at least 2 percent.
“Reports about the fund being insolvent and needing taxpayer bailout are inaccurate and do not reflect the total health of the fund,” Stevens said. “Under no circumstances will a taxpayer bailout be needed to support the fund.”
The insurance program, which tripled in size last year, has never been under more strain as private industry sources for lenders to finance and insure mortgages have dried up and as the U.S. mortgage default rate sits at a record high. The FHA said in a statement earlier today it’s tightening credit and appraisal standards and appointing a chief risk officer to cope.
“To be clear, the fund’s reserves are sufficient to cover our future losses,” Stevens said in the statement. “That said, given the size and scope of the FHA and its importance to today’s market, these risk management and credit policy changes are important steps in strengthening the FHA fund, by ensuring that lenders have proper and sufficient protections.”
Home Prices
Projected home price declines are the “single-biggest driver” behind the drop in reserves, Stevens later told reporters. The insurance fund won’t fall below zero, he said.
FHA’s total reserves are more than $30 billion, or more than 4.4 percent of its insurance, according to the statement. The loan insurance ratio, which measures the amount of reserves to the amount of loans insured, was 6.4 percent a year ago, according to government data.
Michael Williams, the chief executive officer of government-controlled mortgage-finance company Fannie Mae said this month that home sales are still dependent on government- affiliated programs, with private banks providing just 10 percent of loan liquidity, down from about 60 percent in 2006.
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