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FHA Requests $1.7 Billion Bailout from Treasury

SEP 27, 2013 12:17pm ET
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The Federal Housing Administration will take a $1.7 billion draw from the U.S. Treasury to shore up its books at the end of the fiscal year, the first transfer it has required in its 79-year history.

The White House predicted in its April budget that the agency would require $943 million to close a funding gap for the year. The budget shortfall has grown since April due to lower mortgage volumes, and the agency will now take the mandatory appropriation on Sept. 30.

Carol Galante, the FHA's commissioner, attributed the recent decline in loan volumes to higher interest rates in a letter to Congress Friday, noting that the change is "consistent with the trend in the broader housing market" and is also "consistent with FHA's goal of reducing its footprint in the marketplace."

Still, Galante remained optimistic about the ongoing health of the agency.

"In the next few months we expect updated data and economic forecasts to reflect what we already know to be true—the health of the Fund has improved significantly," she said, adding that the agency has "more than sufficient resources to allow FHA to fund its claims activity" even without the transfer. The FHA is required to hold reserves to cover expected losses over a 30-year period.

The agency's fiscal problems continue to stem from its troubled reverse mortgages program, which was also cited in the April budget. Congress passed legislation in late July authorizing the FHA to make certain changes to that program going forward.

GOP lawmakers who are critical of the agency were quick to seize on news of an impending bailout earlier this week, urging that the agency must undergo more structural changes to shore up its finances and reduce its role in the housing market. The FHA is also mandated by Congress to keep a 2% capital reserve, but has fallen below that level in recent years in the wake of the financial crisis.

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