Congressional approval not required: Federal housing agency to take $1.7 billion bailout

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The Federal Housing Administration announced Friday that it needs a $1.7 billion bailout from the U.S. Treasury.

A federal reverse mortgage program for seniors has lost the federal housing agency $5 billion so far. The deal allows struggling seniors to borrow money against their homes, increasing the bottom line that they owe, in order to pay for everyday expenses.

Many seniors took on reverse mortgages through the program and received significant payments from the Federal Housing Administration (FHA). Financial problems were exacerbated by decreasing home values and many seniors were unable to pay back their loans.

Carol Galante, the FHA Commissioner, announced the agency will receive Treasury funds before the fiscal year’s end on Monday. Congressional approval isn’t required for the bailout.

Rumors about the FHA’s financial losses have been heating up as the fiscal year draws to a close. The Obama administration projected an FHA bailout in April for $943 million in losses. The tab five months later is much higher.

The $1.7 billion will be the housing agency’s first ever bailout in its 80 year history. The agency usually has a reserve of choices, such as hiking insurance premiums, to replace severe losses, but the FHA announced in November 2012 that it did not expect its reserves to last through the end of the fiscal year.

Shaun Donovan, the Assistant Secretary for Housing and Urban Development (HUD), the FHA’s parent agency, maintained in April that “if it were not for the reverse mortgage program, the FHA fund would be in significantly positive territory.”

House Republicans have been pushing federal mortgage reform. Texas Republican Rep. Jeb Hensarling, who chairs the House Financial Services Committee, boosted Republicans’ proposed FHA reform in light of the rumors FHA would act.

“It’s time to return the FHA to its traditional mission of helping first-time homebuyers and those with low to moderate incomes,” Hensarling said. House Republicans’ Protecting American Taxpayers and Homeowners Act would limit the FHA these programs instead of riskier reverse mortgage policies, like the one that’s gotten the agency in trouble.

When warnings of a bailout first emerged, Hensarling charged that “if the FHA were a private financial institution, likely somebody would be fired.”

Some are blaming Congress instead for the FHA’s financial failures. The Center for Responsible Lending, a mortgage-focused nonprofit, released a statement Thursday indicting Congress for limiting FHA’s power.

“The proposed draw from the U.S. Treasury Department would not have been needed if Congress had not prevented FHA from clamping down on fraudulent seller-funded down payment loans, as it tried to do.”

Congress eliminated seller-funded down payment loans entirely in 2008. An audit from an independent actuarial firm estimated in 2012 that if FHA had never insured any of the risky loans, FHA’s reserves would be a positive $1.7 billion.

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Sarah Hurtubise