Extra Credit

E F.H.A. May Need Help

By William Alden

The New York Times

Patrick W. Pooley

REE 3043

Fall 2012

FHA May Need Help

By William Alden

This article starts by explaining that when everyone thought the mortgage crisis was getting to an end, the Federal Housing Administration, which is the agency that insures home mortgages, is said to be going through extreme losses. In fact, the agency’s latest annual report is expected to show a shortfall in reserves, and this is leading to speculation that FHA may end up needing assistance from the Treasury Department, Gretchen Morgenson reports in The New York Times. “If the report, due later this week, showed that the F.H.A.’s capital reserves had fallen deep into negative territory, it would be a stark reversal from projections last year that if would show a positive economic value of $9.4 billion on 2012.”

Even with improvement signs in the housing market, delinquencies are still increasing among all FHA insured mortgages. More than one in six of these mortgages are at least 30 days or more late, according to Edward Pinto, a resident fellow at the American Enterprise Institute who specializes in housing. FHA’s “loans are too risky and that has to be addressed,” Mr. Pinto said. “It’s not the legacy book that’s creating all the problems. It’s beyond that.” The New York Times reporter Binyamin Appelbaum twitted that FHA’s dilemma amounted to “a housing crisis predicted by pretty much everyone.”

The Wall Street Journal states that the decision whether the agency would need funds from the Treasury would not be available until February, when the White House issues its annual budget. The newspaper writes that industry analyst expect that administration officials could declare actions that would either avert the need to draw on the Treasury or make changes such as raising mortgage insurance premiums and completing additional legal settlements with lenders.

Jesse Eisinger writes in his DealBook column, The...