During a speech to the National Association of Realtors in San Diego, FHA Commissioner David Stevens said his agency is not headed for the same fate as Fannie Mae, Freddie Mac or the subprime sector. Concerns about the FHA’s financial well being were raised last week when it was revealed in an independent audit that the agency’s funds were below legal guidelines.
The Commissioner sought to minimize these concerns, reporting the agency had $31 billion in capital – an increase of $3.5 billion from a year ago.
Stevens went on to say that the FHA is “the only participant in home financing services in the U.S. economy that hasn’t needed a bailout, hasn’t needed (funds from the government’s Troubled Asset Relief Program), hasn’t needed special assistance and is still completely self-sustaining.”
The AP reports the FHA has insured almost 25 percent of all new loans made in 2009. Eighty-percent of these loans represent first time home buyers.
Stevens rejected comparisons between the FHA and the subprime market. “Nothing could be further from the truth,” he said, stressing the FHA has far more stringent underwriting guidelines for the loans it insures.
As the unemployment rate has risen, so have FHA’s losses. According to the Mortgage Bankers Association, approximately 17 percent of FHA borrowers are at least one payment behind or in foreclosure. This compares with 13 percent for all loans.
The FHA does not make loans. It insures against default, taking much of the risk away from lenders. FHA loans have grown in popularity in recent years as credit markets have tightened up. The agency’s 203K rehab loan is also growing in popularity as more first-time home buyers purchase foreclosures.
DHW asks: Do you think the FHA is at risk of needing a government bailout?