How to fix the Federal Housing Administration

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Article Highlights

  • Congress should require a safety and soundness review of FHA now.

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  • The FHA must bring a credible plan to Congress on how to deal with its insolvency.

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  • The longer it takes the FHA to return to a sound fiscal footing, the greater the risk to the taxpayer.

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Today, FHA released its FY 2012 Actuarial Study for its main single-family insurance program confirming its economic value or capital position has turned negative by $13.5 billion. This represents a deterioration of $23 billion from last year’s projection for FY 2012. The projection for FY 2018 has a total of $79 billion in plus and minus adjustments netting out to a negative $17 billion compared to last year’s projection. Swings of this amount indicate that the model FHA uses to calculate its actuarial soundness, while improved over earlier versions, continues to provide projections that are highly uncertain.

Each year, the FHA gives Congress a negative report and then says not to worry, next year will be better. But in fact, each year it gets worse. FHA’s delinquencies continue to grow with one in six FHA loans delinquent 30-days or more. The longer it takes the FHA to return to a sound fiscal footing the greater the risk to the taxpayer.

The rules FHA uses would not pass muster for a private company. My analysis indicates that, today, under generally accepted accounting principles (GAAP), the FHA has a net worth of negative $25 billion.

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About the Author

 

Edward J.
Pinto

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