Reverse mortgage losses may force FHA to seek $1B bailout
WASHINGTON — The Federal Housing Administration may need as much as a $1 billion rescue package before the end of the year to bolster its reserves despite efforts to shore up its finances with higher mortgage insurance premiums, a Senate subcommittee was told Tuesday.
FHA Commissioner Carol Galante said her agency, which insures some 40 million home mortgages, is struggling with more than $5 billion in losses on reverse mortgages that allow people over 62 to borrow against their home equity and use the money for living expenses. Galante said the FHA played a crucial role in bringing the housing market back from the brink of collapse, but at a heavy financial price to itself.
The FHA is required by law to maintain reserves equal to 2 percent of the total amount of home mortgages it insures. It currently has about $32 billion in reserves.
The agency, created during the Great Depression to create more affordable homeownership opportunities, insures more than $1 trillion in mortgage loans to primarily low-to-moderate-income families and first-time homebuyers.
The Obama administration said in its fiscal 2014 budget request six weeks ago that FHA would probably need $943 million in taxpayer assistance to bolster its reserves to cover losses from loans it insures. The government's mortgage insurer has until Sept. 30 to decide whether or not it will need the cash infusion from the Treasury, which does not require congressional approval and would be the first in the agency's 79-year history.