FHA Earmarks $12.2B for Single-Family Losses

The Federal Housing Administration has set aside $12.2 billion in reserves to cover expected losses on its single-family program after closing the books on a record fiscal year in which lenders originated $171.8 billion in FHA-insured loans. The FHA insured portfolio jumped to $479.6 billion in the fiscal year ended Sept. 30, 2008, up from $351.8 billion in FY 2007. And its reserves jumped to $19.7 billion, up from $7.5 billion in FY 2007. The annual FHA management report attributes the sharp rise in "loan guarantee liability" to high default rates on loans with downpayment assistance and house price declines. The nationwide decline in house prices "results in increased claims and lower proceeds from the sale of foreclosed properties," the report says. The FHA report also shows that the capital ratio for the single-family insurance fund fell to 3% in FY 2008, down from 6.4% in the previous fiscal year. By statute, FHA must maintain a 2% capital ratio.