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FHA could seek $1B bailout after reverse mortgage losses

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.
By ANDREW MIGA Modified: June 4, 2013 at 9:05 pm •  Published: June 5, 2013

“It's of great concern to us,” said Sen. Susan Collins, R-Maine.

Galante told the Senate Appropriations transportation and housing and urban development subcommittee it's still possible FHA could see “significant improvements in recoveries on defaulted loans” that could lessen the need for a bailout. She said the agency now has sufficient cash to pay insurance claims against mortgage defaults.

The 2 percent capital reserve ratio is aimed at covering projected losses over the next 30 years in the agency's Mutual Mortgage Insurance Fund.

During the financial crisis, the FHA's share of the mortgage market grew as private capital left the market. The FHA was hit with defaults on many single-family loans it insured from 2007 to 2009. The agency has projected that covering those losses will cost $70 billion.

The FHA's reverse mortgage programs suffered big losses when many homeowners took large payments up front and later ran into financial problems, often worsened by falling home values.

Associated Press