President Barack Obama accounted for a nearly $1 billion bailout for the Federal Housing Administration (FHA), the home-mortgage insurance agency that has been floundering for cash since last November, in his budget released Wednesday. Such a bailout would be the first for the agency in its 80-year history.
The FHA has been under financial pressure since the housing market went bust in 2008. Currently, one in six FHA insured loans is delinquent. President Obama’s budget accounts for the projected amount of cash the agency will need to stay solvent.
FHA commissioner Carol Galante maintains that the agency is moving in the right direction.
“FHA, while still under stress from legacy loans, has made significant progress and is on a sound fiscal path forward,” Galante told reporters on a conference call. “We are continuing to act and do everything possible to ensure that the impact of these legacy loans … are corrected as soon as possible.”
“The FHA is required by Congress to keep enough cash on hand to cover all expected future losses and must take a taxpayer subsidy if its projected revenue falls short,” Reuters explains.
Last November, FHA announced a projected cash shortfall of $16.3 billion and the risk of depleting its cash reserves. Since then, the agency “has a taken a number of steps to shore up its books, including charging borrowers higher premiums,” Reuters writes. These policy changes, coupled with a continued increase in housing prices, have helped put the agency on a more sound financial footing.
Still, the future of FHA poses a huge liability for taxpayers.
“As my colleague and I always say, ‘They are one recession away from a catastrophic loss to the taxpayers’,” Edward Pinto, visiting fellow at the American Enterprise Institute and author of studies on the housing industry, told The Daily Caller News Foundation.
Should the agency in fact need to draw on taxpayer funds, Galante suspects the apportioned amount that the White House allotted “could be a little higher, it could be a little lower.”
“But I would not expect a major change,” she said.
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