FHA Accused of Covering up Bigger Potential Losses

by devteam June 5th, 2013 | Share

RepresentativernDarrell Issa (R-CA) is said to have accused the Federal HousingrnAdministration (FHA) of attempting to bury a $115 shortfall in itsrnmortgage insurance fund (MIF). Bloomberg</iand The Wall Street Journalrnare reporting that Issa sent a letter on May 29 to FHA CommissionerrnCarol Galante seeking documents relating to a October actuarialrnreport by IFE Group, an independent contractor and requesting thatrnFHA employees be prepared to appear before his House Committee onrnOversight and Government Report.</p

FHA<a href=""reported in October that losses on defaulted loans could result in arn$16.3 billion deficit in its MIF and that it might need to request arndraw on its line of credit with the U.S. Treasury, the first suchrnsubsidy in its 79 year history. Issa alleges that emails obtained byrnhis committee “indicate that the fund’s true liability may be asrnhigh as $115 billion under severe economic circumstances, and thatrnFHA may have encouraged IFE Group to obfuscate this fact fromrnCongress.”</p

In his letter, which his office has notrnyet made publicly available, Issa quoted e-mails between an FHArnofficial and the independent contractor. “We just do not want thatrnanalysis to be in the actuarial review report for the first time thisrnyear,” one e-mail reportedly said, referring to the $115 billionrnprojection. “In congressional hearings, it is quite possible thatrnwe will be required to present this information on the record, butrnthat will be well after the actuarial review is released and therninitial media coverage takes place.” </p

(Read More: Not the First Time Congress Has Made Such a Request)</p

“We are looking into thisrnmatter and we will respond to the committee appropriately,” AddiernWhisenant, a spokeswoman for the Department of Housing and UrbanrnDevelopment, said in an interview with Bloomberg.rn</p

In anrnappearance before the House Financial Services Committee lastrnFebruary Galante testified that the actuary projected that the MMIrnFund capital reserve ratio will be positive the FY 2014 and reach itsrnCongressionally mandated level of 2.0 percent by FY 2017. Galanternsaid changes announced by FHA since the report was issued in Octoberrnare expected to accelerate the time of the Fund’s recovery. </p

PresidentrnObama’s 2013 budget reduced its estimate of the funds that might bernneeded to $943 million in the budget plan it released in April. At arnpress conference the day of the budget release, Housing and UrbanrnDevelopment Secretary Shawn Donovan said that the reduction in thernbudget request resulted from concentrated efforts to increasernrecoveries from loans made in 2007 and earlier and through ramped uprnloan modifications and increased loan sales as well as changes in thernreverse mortgage guidelines and substantially increased premiums forrnboth FHA and Ginnie Mae loans. </p

The agency has until Sept. 30, the end of the fiscal year, to makerna final determination of whether it will require aid from thernTreasury this year and Galante has said the ultimate need will bernborne out in the actual performance of the FHA single family programrnand other steps FHA takes to increase revenue or reduce losses. </p

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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