President Obama’s budget that is slated for release Wednesday morning is unlikely to include a funding request for the Federal Housing Administration single-family program, according to a FHA expert.
“It is unlikely the forward mortgage program will need a draw from the Treasury,” said Brian Chappelle, a co-founder of Potomac Partners.
The mortgage consultant estimates FHA could avoid a bailout due to the improvement in house prices since the summer of 2012 and the quality of new FHA loans originated since Sept. 30, 2012.
This fiscal year 2013 book of business will “add almost $11 billion in net revenue to the FHA mortgage insurance fund,” Chappelle told NMN.
But many expect the White House will have to request a draw for FHA. An annual
House Financial Services Committee chairman Jeb Hensarling, R-Texas, recently said FHA is a high-risk program. “We know the FHA is broke and is quickly approaching bailout-broke,” Hensarling said.
Chappelle points out that the independent auditors couldn’t include the value of the FY 2013 book of business in their actuarial report.
But the White House budget office can count the FY 2013 book in determining whether FHA needs a draw from the U.S. Treasury.
In addition, “home price estimates have improved dramatically since last summer,” Chappelle said.
Fannie Mae recently reported a record profit for calendar year 2012 and the GSE attributed rising housing prices for a lot of the improvement.
Another factor in Chappelle’s calculation is refinancings. The auditors assume that refinancings reduce FHA’s revenue because borrowers will take out conventional loans.
FHA reported nearly 380,000 repayments from October 2012 through January 2013, up 140% from the same four-month period a year ago. However, nearly 198,000 of those homeowners refinanced back into FHA loans. “That is apparently more loans than the auditors expected to return to the FHA program,” Chappelle said.
Meanwhile, there is speculation that the
FHA commissioner Carol Galante recently told a congressional panel that reverse mortgages make up just 7% of all FHA-insured loans. But they are generating 17% of the negative economic value of the FHA mortgage insurance fund.
