FHA Fund Could Swing to Red

Washington-The Federal Housing Administration's reserve fund is still in the black, but it would only have to cross a thin line to slide into the red.

First, the good news: the FHA reserve fund has enough unencumbered cash left to continue writing policies on its fast-growing book of business.

Now the bad news: the fund's capital position fell below the 2% minimum this fall and is now at 0.53% to cover an outstanding book of business just shy of $700 billion.

Despite the stark reality facing the government insurer, Department of Housing and Urban Development secretary Shaun Donovan and FHA chief David Stevens are now on a mission to assure the nation that the Federal Housing Administration's reserve fund is in no immediate danger of running out of cash.

At last check, FHA-backed loans accounted for 25% to 30% of all new originations, including 50% of the first-time homebuyer market. Four years ago FHA had a market share of less than 3%.

To many mortgage bankers, the FHA program is the only game in town, and without it originations to cash-strapped and low-income borrowers would seize up.

Meanwhile, with the FHA's capital ratio so perilously close to zero, the agency is weighing its options, including a possible hike in the upfront mortgage insurance premium charged to consumers.

At a recent unveiling of a new - and much-anticipated FHA audit - Secretary Donovan would not rule out a hike in the MIP, but didn't exactly say it was imminent either.

Lenders fear that a hike in the MIP would raise costs for consumers and slow the housing recovery.

Some media reports have suggested that the fund is insolvent or will be soon.

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