WASHINGTON — The Federal Housing Administration will need funding from the U.S. Treasury Department before the end of the year to fill a financial hole caused by defaults on mortgages it insures, House Financial Services Committee Chairman Spencer Bachus said Thursday.
A request for aid would be the first in the agency’s 78-year history and could create political problems at a time when Republicans and Democrats are engaged in negotiations over how to solve the nation’s fiscal woes.
The FHA will propose increases in the premiums it charges to insure mortgages as one solution to its financial problems, Bachus said during a news conference in Washington. That won’t be enough to offset its near-term need for cash.
The agency is “burning through” its last $600 million and FHA officials have briefed him that they will need a financial backstop within a month, the Alabama Republican said.
“Because of the number of foreclosures, they’ve indicated they will have to come to the American people and ask for money,” he said.
FHA does not need approval from Congress to receive a financial infusion from the Treasury Department. FHA spokesman George Gonzalez declined to comment.
The agency is scheduled to release its annual actuarial report today. The report is expected to project that losses from defaults on the loans it insured from 2005-09 will exceed the value of its insurance fund.
In advance of the report, FHA officials have been publicly emphasizing the role the agency plays in the economy as a backer of home loans for low-income borrowers who do not have large down payments.
FHA insures a portfolio of about $1.1 trillion in home loans and now backs 15 percent of U.S. mortgages for home purchases.
The agency provides liquidity to the housing market by insuring lenders against losses on loans with down payments as low as 3.5 percent. Lenders are made whole if the mortgages default. Unlike Fannie Mae, the Federal National Mortgage Association, and Freddie Mac, the Federal Home Loan Mortgage Corp., the mortgage-finance companies operating under U.S. conservatorship, FHA doesn’t package loans into securities or guarantee principal and interest payments.
The government-backed mortgage insurer until now has covered its costs with revenue from premiums. In the past two years, it has raised premiums and tightened credit standards in an effort to avoid asking for a taxpayer subsidy.
Business, Pages 28 on 11/16/2012