House Financial Services Committee Chairman Spencer Bachus said Thursday that the Federal Housing Administration will propose increases in the premiums it charges to insure mortgages as one solution to its financial problems. But that wont be enough to offset its near term need for cash.
The agency is burning through its last $600 million and FHA officials have briefed him that they will need a financial backstop within a month, the Alabama Republican said during a press conference in Washington.
Because of the number of foreclosures, theyve indicated they will have to come to the American people and ask for money, he said.
A request for aid would be the first in the agencys 78- year history, and could create political problems at a time when Republicans and Democrats are engaged in negotiations over how to solve the nations fiscal woes.
FHA does not need approval from Congress to receive a financial infusion from Treasury. FHA spokesman George Gonzalez declined comment.
Bachus refrained from criticizing the government mortgage insurer in remarks after the press conference and blamed the agencys losses on the economy.
These are just a wave of foreclosures which we obviously are not over, Bachus said. Its basically a function of a bad economy.
Bachus remarks came a day before the agency is scheduled to release its annual actuarial report, which is expected to project that losses from defaults on the loans it insured from 2005 to 2009 will exceed the value of its insurance fund. That report, which will describe the agencys financial situation, is separate from any eventual request for a draw from Treasury.
In advance of the report, FHA officials have been publicly emphasizing the role the agency plays in the economy as a backer of home loans for low-income borrowers who do not have large down payments. Agency officials have been sending out messages on Twitter with the hashtag #FHAmatters.
FHA insures a portfolio of about $1.1 trillion in home loans and now backs 15 percent of U.S. mortgages for home purchases.
The agency provides liquidity to the housing market by insuring lenders against losses on loans with down payments as low as 3.5 percent. Lenders are made whole if the mortgages default. Unlike Fannie Mae and Freddie Mac, the mortgage finance companies operating under U.S. conservatorship, FHA doesnt package loans into securities or guarantee principal and interest payments.
The government-backed mortgage insurer until now has covered its costs with revenue from premiums. In the past two years, it has raised premiums and tightened credit standards in an effort to avoid asking for a taxpayer subsidy.