HUD Delays Release of FHA Audit, Raises Questions on Models

The Department of Housing and Urban Development late Tuesday unexpectedly delayed the release of a much-anticipated audit of the FHA's capital reserves, raising questions about the accuracy of some of the findings. The delay fueled industry speculation that the government insurance fund is perilously close to reaching the zero mark. In a statement, FHA commissioner David Stevens said the government asked its outside auditor, IFE Group of Rockville, Md., "to run additional economic scenario testing above and beyond what was going to be included in the actuarial study to better understand a broader range of risk scenarios." Based on what it saw of the results, FHA raised questions about the accuracy of IFE's modeling. The auditor then told FHA that it should not treat the report as final. IFE is now running additional tests to ensure that the final report is accurate, FHA said. FHA insures just over $700 billion in mortgages. At midyear its reserves stood at just under $8 billion. But with claims rising that number may have fallen below $5 billion, according to industry sources. Ed Pinto, an industry consultant and FHA critic, said Tuesday that he believes the audit results will be based on "overly optimistic" assumptions relative to the fund's delinquencies, cure rate on defaulted loans and success rate on loan modifications. Mr. Pinto told National Mortgage News that if the FHA's reserves do in fact go negative, "however small that number is, it will be ominous." HUD officials could not be reached for comment.