-
The agency's annual independent actuarial report is expected to show that its capital reserves have been depleted by rising levels of defaults. FHA could shore up its finances by increasing its enforcement against banks and other lenders, but it may also need to tap the Treasury for the first time in its history.
November 13 -
An independent audit found that the Federal Housing Administration's capital reserve ratio fell into negative territory, meaning the agency may need a bailout from the Treasury Department for the first time in its 78-year history.
November 16
Friday's
It will be months before we know the final tab, but even the
Without the agency's help in recent years, it would have been much more difficult for middle-class families to access mortgage credit since the housing crisis began. As private capital fled the mortgage market, FHA insurance propped up demand for homes, preventing housing construction and sales from plummeting even further than they did.
According to
Still, critics will be quick to make hay of the news, stoking public outrage over billion-dollar "bailouts," gross mismanagement of taxpayer risk, and imminent insolvency at the agency, which backs $1.1 trillion in home loans.
Don't buy any of it.
First, the agency's current financial troubles are not the result of a weak business model or the financial incompetence of federal bureaucrats, but of a "hundred-year flood" of foreclosures during the worst housing crisis since the Great Depression, plus a couple of poor policy decisions.
The bulk of the agency's losses come from
The FHA tried to eliminate seller-financed loans from its programs for years, but
Meanwhile, the agency's more recent years of business are likely to be some of its most profitable ever, due in part to higher fees and new protections put in place by the Obama administration. It's worth noting that
Second, Friday's announcement does not signal an imminent financial emergency at FHA; it's the byproduct of prudent budgeting.
FHA is not running out of money any time soon. The agency still has $30.4 billion in its coffers to settle insurance claims as they come in. But according to federal budget rules, FHA must hold enough capital to cover all expected claims over the next 30 years, which would require about $46.7 billion, according to FHA's actuaries.
That's where the taxpayer support comes in. When the agency does not have enough money to cover all expected claims, the U.S. Treasury automatically fills the gap. That's always been part of the agreement taxpayers made with FHA, dating back to the 1930s. Extending this support isn't a "bailout," it's fulfilling a legal promise.
All things considered, it's actually quite remarkable that the agency made it this far without requiring that support. In the wake of the crisis, most private mortgage insurers have either
So don't be fooled by the "bailout" hysteria. In exchange for our support today, the FHA saved taxpayers hundreds of billions of dollars by preventing massive home-price declines, another wave of foreclosures, and millions of terminated jobs – all while outperforming its counterparts in the private sector.
Even the most fanatical budget hawks would call that a bargain.
John Griffith is a policy analyst with the housing team at the Center for American Progress.