FHA is required by Congress to maintain a<b2 percent cash reserve in the MMI, but credit related expenses, largely relatedrnto loans guaranteed by the agency over the several years prior to the housingrnmeltdown, depleted that fund and it has been operating below its mandated reservernlevel for several years.  An independentrnactuarial report late last year found the fund operating at a deficit of $16.3rnbillion</p

FHA Commissioner Carol Galante,rntestifying about the audit before the House Financial Services Committee inrnFebruary said the deficit identified by the actuaries was against an activernportfolio of $1.13 trillion.  Shernestimated the economic value of the forward portfolio at negative $13.5rnbillion, the HECM portfolio at negative $2.8 billion or capital reserve ratiosrnof negative 1.28 percent and negative 3.58 percent respectively.   At the time of the assessment the actuaryrnprojected that the funds capital reserve ratio will be positive by FY 2014 andrnreach 2.0 percent during FY 2017 assuming no changes in policy or other actionsrnby FHA. </p

At a press conference accompanyingrnrelease of the FY2014 budget In April Donovan declined to speculate about a Treasury draw but said that muchrnprogress had been made in plugging the hole identified by the auditor. He saidrnthat if comparisons were made “apples to apples” the fund was actually inrnnegative territory by more like $19 billion but in the few months since thernreport FHA had made changes which had narrowed that gap to $943 million.  The changes included ramped up modificationsrnand increased loan sales to increase recoveries from the 2007 and earlier loans,rnsuspending the bulk draw payment option of the reverse mortgage program, and substantiallyrnincreasing premiums for both FHA and GNMA loans.  FHA has also tightenedrnenforcement of underwriting rules, and suspended or revoked lending authorityrnof a number of companies.   Donovan said no decision would be made on thernneed for a Treasury draw until October 1. rnCurrent news reports are apparently relying on the April statement inrndrawing their conclusions about the size of any draw.</p

The White House, HUD, and FHA have tornthis point declined comment however critics of FHA have not been sornreticent.  Senator Bob Corker (R-TN), arnmember of the Senate Banking Committee and co-author of the Corker-Warner billrnto reform the housing finance system said,rn”No reasonable person could believe that we should continue along with therncurrent housing finance system in this country when three separate entities -rnFannie, Freddie, and, according to reports, now the FHA – have all had to comernto the taxpayer for billions of dollars in bailout funds.” </p

House Financial Services CommitteernChairman Jeb Hensarling (R-TX) is sponsor of the so-called “PATH” legislation whichrnwas favorably voted out of the Committee in July.  He issued the following statement in responsernto the news reports.   </p

“Hardworking American taxpayers are sick and tired of havingrnto bail out Washington’s failed housing policies, whether it’s the nearly $200rnbillion bailout of Fannie Mae and Freddie Mac or a bailout of the FHA. rnReports that the FHA will require its own billion dollar bailout reinforce thernneed for the PATH Act, our proposal to create a sustainable housing financernsystem.  The PATH Act not only ends the bailout of Fannie and Freddie, itrnincludes reforms that will help ensure the FHA is solvent.  Over thernyears, the FHA has strayed far from its original mission.  It has becomernthe nation’s largest subprime lender.  It’s time to return the FHA to itsrntraditional mission of helping first-time homebuyers and those with low andrnmoderate incomes, and that’s exactly what the PATH Act does.”</p

 PATH co-sponsor Randy Neugebauer (R-TX) and SenaternBanking Committee member David Vitter (R-LA) also issued statements followingrnthe Journal and Reuter reports.  

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