The U.S. Department of Housing and Urban Development (HUD) is pushing back against a report that said the Federal Housing Administration (FHA), a major backer of residential mortgages, could require a bailout.
On HUD's Web site, Raphael Bostic, HUD's assistant secretary for policy development and research, responded to the report, commissioned by the American Enterprise Institute and conducted by the University of Pennsylvania's Wharton School. He defended the FHA Mutual Mortgage Insurance Fund's strength, particularly on the basis on its business since January 2009.
He wrote that while older mortgages underwritten between 2000 and 2008 are expected to cause losses of over $26 billion, loans in the last two years have a net value of $18 billion. Business in 2012 is expected to add $9 billion to the fund, wrote Bostic, and the FHA's liquid assets are $400 million higher than one year ago. Bostic added that the FHA's borrowers in 2010 and 2011 had much better buyer quality. And while the company has grown to around a third of the mortgage market, the deliquency rate for mortgage loans is around 1 percent for 2010, down from over 6 percent in 2007 and 2008, according to Bostic.
The Wharton report said that up to 1 million high-risk loans were made to borrowers who did not make downpayments with their own money using the federal government's first-time homebuyer tax credit. Bostic wrote that the figure was completely false and irresponsible, noting that around 700,000 borrowers made the downpayments themselves, while only 277,000 received gifts from a relative.
The FHA's fund remains highly dependent on home prices, and a 4 to 5 percent overall decline over the next year could force the FHA to seek outside assistance, likely in the form of taxpayers. But Bostic wrote that while the future of the housing market was uncertain, he defended the FHA's current lines of business, which was increasing funds and reducing deliquency rates with stronger underwriting.
Put simply, while FHA's future may be linked to the future of our housing market, FHA -- representing a third of the market -- is also essential to the recovery of our housing market, wrote Bostic. Providing access to credit for homebuyers of all income ranges and in all communities, and stabilizing our housing market, has been FHA's mission for nearly eight decades. And the only prediction I'm willing to make is that it will continue to do so.