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With FHA Audit Due Any Day, 90-Day Lates Jump

NOV 13, 2012 11:46am ET
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Within the next few days a crucial audit will be released on the FHA’s mutual mortgage insurance fund, but recent figures released by the agency indicate that late payments are headed in the wrong direction.

The Federal Housing Administration ended fiscal year 2012 with 739,000 single-family loans that were 90 days or more past due, a 16% jump from FY 2011.

Trade group and mortgage insurance officials, who spoke under the condition their names not be used, fear that FHA assumptions on where home prices are headed in the next three years could be the deciding factor on whether the agency will need to tap a line of credit with the U.S. Treasury.

These sources are predicting that the line may be essential to keeping the fund in the black.

As for delinquencies, the new figure translates into a 9.58% serious delinquency rate as of Sept. 30. The FHA funded provides government insurance on $1.1 trillion of home mortgages. (The market leaders in GNMA servicing rights, Wells Fargo and Bank of America, have a combined market share of 52%, according to MortgageStats.com.)

In fiscal year 2011 the fund had a serious delinquency ratio of 8.71%.

FHA paid 143,000 claims in FY 2012, up 21% from the prior year. FY 2012 claims included 100,650 foreclosures and 36,750 short sales.

Meanwhile, loss mitigation efforts declined during the year. The September report shows that FHA servicers completed 84,200 loan modifications in FY 2012, down from 145,000 in FY 2011. The 42% plunge pushed up claims, further taxing FHA financial reserves.

The actuarial report should be out by week’s end. Outside auditors are expected to report that the FHA mortgage insurance fund does not have enough capital resources to cover current and projected losses on its insured portfolio.

Sources say the agency will seek a draw of between $3 billion and $20 billion from Treasury to cover the hole. If that happens, it will mark the first time in the 78-year-old mortgage insurance program that FHA taps Treasury to remain solvent.

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