Glass Half-Full Amidst FHA Bailout Worries?

Image Credit: Bubble Info 

While news this week of the Federal Housing Administration's (FHA) possible need of a $943 million bailout from the federal Treasury presents a bleak picture of the ripple effects of the housing crisis, the same reports provide some hopeful figures and trends. First, speculation about the possible need for the first bailout in the agency's 80-year history is largely based on current projected figures and the likelihood of the FHA tapping into the Treasury will likely not be known until the close of the fiscal year in the fall. Second, FHA Commissioner Carol Galante notes that the FHA has taken"stop gap" measures to protect some of the FHA's previous vulnerability, such as a moratorium on standard fixed-rate reverse mortgages readjusting maximum amounts, and requiring all borrowers to attend reverse mortgage counseling before applying for a loan. Finally, while much of the FHA's shortfall is caused by fallout from government-backed reverse mortgages that provide tax-free cash to senior citizens and result in default if the homeowners do not pay property taxes or insurance, the rest of the FHA is on firmer financial ground- excepting the reverse mortgage program, the other initiatives, including the robust single-family program, would result in a nearly $4 billion surplus at the end of the FY. While the FHA treads unpredictable waters and many of the policies surrounding government-backed reverse mortgages- like the reverse mortgages themselves- are controversial, the resurgence of the single-family home program provide some cause for cautious optimism about the future of the FHA. Nothing is certain about the prospect of a bailout as we turn our eyes toward October.