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September 18, 2009 – Comments (7) | RELATED TICKERS: SLV , AUY , BX

FHA: No Need for Subsidies to Boost Reserves

Friday, September 18, 2009 9:38 AM

WASHINGTON -- The U.S. Federal Housing Administration said on Friday it would not need a congressional subsidy even if mortgage-related losses push its reserves below a level demanded by Congress.

 

Rising losses at the FHA, part of the U.S. Department of Housing and Urban Development, raise the possibility its capital reserve ratio could dip below the 2 percent level, and the government might have to support the agency, analysts say.

 

The Wall Street Journal on Friday reported that government officials believed reserves at the FHA, which provides government guarantees on mortgages for some home buyers, were in danger of breaching the 2 percent mark.

 

"Even if that level falls below 2 percent, FHA continues to hold more than $30 billion in its reserves today, or more than 5 percent of its insurance in force," FHA Commissioner David Stevens said in a statement. "Given this reserve level, FHA will not need a congressional subsidy even if the congressional capital reserve calculation falls below 2 percent."

 

So here we go again. Rest of Story link. http://www.moneynews.com/financenews/fha/2009/09/18/261788.html?s=al&promo_code=8944-1

 

7 Comments – Post Your Own

#1) On September 18, 2009 at 12:26 PM, russiangambit (29.31) wrote:

I am puzzled by the hole thing. Isn't FHA a government sponsored program? But it is not financed by the government? Why would lenders want to contribute more money when they can give loans to prime borrowers instead?

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#2) On September 18, 2009 at 12:41 PM, AvianFlu (33.73) wrote:

The FHA is a branch of the federal government. FHA guarantees the loan in case of default, thus making it very safe for lenders. Conventional loans may or may not have some kind of similar protection. There are many buyers who will not qualify for a conventional loan, but they ARE able to qualify for an FHA loan because it's rules are more lenient for the borrower. So this allows a lender to make more loans while at the same time reducing their damage if a default occurs. It is pretty sweet for the lender, except to say there is a lot of additional paperwork.

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#3) On September 18, 2009 at 2:04 PM, russiangambit (29.31) wrote:

Avian, thanks for explainin.

So, is it completely risk-free for the lender then? It sounds like they have to contribute to the FHA reserve fund, similar to FDIC. SO, who covers the losses the lenders through the reserves or the government?

My understanding FHA is targeted to people who have hard time getting conventional mortgages due to poor credit or low income. It seems that at this time these loans are very high risk of default  .

Of course, I think that there shouldn't be a thing like FHA at all. If you can't qualify for a conventional loan, then you probably can't afford the house in the fist place.

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