FHA needs $1.7 billion from Treasury

In fact, Galante estimated in her letter that reductions in delinquencies, early payment defaults and foreclosure starts will mean upward of $5 billion in revenue for the agency, far outweighing the $1.7 billion needed now. 

The next report is expected in December and should provide a clearer picture of the agency’s financial situation. 

In the letter, she told lawmakers that the agency has $30 billion in assets — cash and investments — and generated an additional $17 billion this year.

“These are more than sufficient resources to allow FHA to fund its claim activity,” she wrote.

The FHA is required to maintain a reserve account that covers all expected losses for the next 30 years for its $1 trillion book of business.  

The deficit calculations are based on a December 2012 estimate to ensure it has sufficient reserves to cover expected losses on the loans it backs.

Still, the size of the bailout was nearly double the $943 million President Obama included in his fiscal 2014 budget back in April. 

The FHA will receive the funds by Monday, before the start of the new fiscal year — a first for the agency since its creation in 1934.

The billions in losses in the agency’s reverse mortgage program were precipitated by borrowers, who must be age 62 or older, taking mostly lump sum payments, depleting the reserves. The agency has since changed the rules on the program.

Meanwhile, Galante said the decline in FHA loans was “consistent with the trend in the broader housing market in response to higher interest rates.”

The FHA stepped in during the financial crisis to take up the slack in mortgage finance as the private market retreated, and is still dealing with bad mortgages from 2007-2009. 

The agency more than quadrupled its activity, accounting more than 20 percent of the market during the peak of the downturn. 

Its book of business in the past several years is boosting its revenues. 

Under current law, the FHA is obligated to take the money it needs from the Treasury.

Congress does not need to approve the bailout.

The announcement gave lawmakers another occasion to call for an overhaul of the agency.

The House and Senate each have legislation in the pipeline with the aim of helping out the agency. 

“I’m shocked to find out now that the FHA will require nearly double the amount they projected,” said Rep. Randy Neugebauer (R-Texas), a member of the House Financial Services Committee who helped craft the panel’s housing finance legislation.

“This news is a clear sign that we must act quickly to reform the FHA, or taxpayers will be paying the price again and again.”

But Rep. Maxine Waters (D-Calif.), ranking member on the Financial Services panel, argued that the housing market might have suffered more damage, including much larger drops in prices, without FHA stepping in to help a broad array of homeowners. 

“Although this one-time transfer of funds from the Treasury is legally necessary, it’s important to note that FHA is far from bankrupt, holding over $30 billion in reserves and continuing to generate revenue,” she said. 

“Above all, we must strive to have a healthy, viable FHA that can continue to facilitate homeownership for first-time and low-income homebuyers, while standing ready in the unfortunate event of another housing downturn.”

The FHA also required by law to maintain another reserve account equal to 2 percent of the total amount of home mortgages it insures. That account has been below that level since 2009 but has been as high as 7 percent in the past decade. 

Once the reserve accounts are back to required levels, Treasury can dip back in and draw out the money it borrowed and more, up to the exact amounts the agency needs in those two reserve accounts.