After the housing market crashed in 2007, the FHA was the only agency, government or private, to see gains in the years that followed. As a result, the moderate housing recovery is partially attributed to the Federal Housing Administration, but because of reverse mortgages and other losses, this agency may be facing a bailout by the end of 2013.
According to the Associated Press, the FHA may require a $1 billion bailout, even after increasing its mortgage insurance premiums earlier in 2013. As of right now, a Senate subcommittee revealed, the agency has $5 billion in losses stemming from reverse mortgages.
As AP points out, multiple factors contributed to this deficit. First, even though the FHA opened up homeownership opportunities after the crash, the agency still saw $70 billion from defaulted mortgages between 2007 and 2009. On top of this, homeowners requesting and getting approved for reverse mortgages took large upfront payments, only to have difficulties paying them back later on. Falling home values, resulting in underwater mortgages across the country, further exacerbated the issue.
Legally, the FHA is required to have reserves equal to two percent of the total amount of mortgages it insures; right now, its reserves are $32 billion for more than $1 trillion of loans. To make up the difference, the 2014 fiscal budget has $943 million earmarked for any losses. The FHA, meanwhile, must decide before the end of September if the Treasury will assist it with funds.
Although the FHA has made multiple mortgage premium increases since 2009, 2013’s efforts are significant. Not only were premiums increased by 10 basis points (or 0.1 percent of the total), borrowers are now required to pay annual mortgage insurance for the full duration of the loan. Borrowers who put down less than 10 percent are required to have mortgage insurance for the life of the loan, while down payments for FHA loans $625,000 or over went up from 3.5 to five percent.