FHA Expects Single-Family to Lose Money Next Year

The Federal Housing Administration single-family mortgage program is projected to incur a loss next year - the first time in the program's 70-year history - due to rising defaults and declining originations.

Budget proposals released by the Bush administration show the FHA mortgage insurance fund will go into the red in fiscal year 2008 unless premiums are increased or Congress approves a FHA reform bill.

However, the Bush administration is not providing any funds in the budget to cover a shortfall. It appears the administration expects the FHA to increase its 150 basis point upfront premium and 50 basis point annual premium to break even.

"The 2008 baseline includes no budget authority to cover these costs and assumes FHA would use its existing authorities to increase premiums to avoid the need for credit subsidy appropriations," budget documents say.

The Bush administration succeeded in getting the House to pass a FHA reform bill last year, but it died in the Senate. The Department of Housing and Urban Development is renewing its efforts to pass the reform bill this year.

The budget documents show passage of the FHA reform proposal would put the FHA mutual mortgage insurance fund in the black.

The budget documents also reveal that FHA's cumulative default/claim rate has risen from 10% to 12% in 2006, based on recent projections. At the same time, FHA originations fell from $51.8 billion in FY 2006 to $44.4 billion in FY 2007. FHA production is projected to be $39.7 billion in FY 2008.

"The administration's FY 2008 budget proposal demonstrates the need for reform of the FHA single-family program," according to the Mortgage Bankers Association.

The president's FY 2008 budget proposal also calls for a merger of the FHA reverse mortgage, condominium and 203(k) home improvement loan programs into the single-family MMI fund.

The MBA favors a merger of these loan programs into the MMI fund.

However, the MBA opposes other budget proposals that would increase Ginnie Mae fees and increase premiums on FHA multifamily loans.

Ginnie Mae generated $786.5 million for the U.S. Treasury in FY 2005, according to the MBA. "This new fee would affect affordability and have a significant impact on first-time homebuyers and minorities who rely on the FHA loans to achieve homeownership," MBA chairman John Robbins said. (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com

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