FHA Reserve Ratio Falls to 0.53%, Lowest in History
OPS_admin | Nov 13, 2009 | Comments 0
The Federal Housing Administration’s mortgage insurance reserves fell to the lowest level in history and the government said more steps are needed to shore up the agency that guarantees one of every five single-family loans.
The net capital ratio, or reserves after accounting for projected losses, fell to 0.53 percent in the year ended in September, from 3 percent in fiscal 2008 and 6.4 percent in 2007, according to an annual review sent today. While FHA said the fund “has good prospects,” it is changing its risk models to account for the possibility of the ratio falling below zero.
“Additional actions” will be needed to shore up the agency, Housing and Urban Development Secretary Shaun Donovan said at a news conference in Washington today. The insurance fund tripled in size last year and has taken on more risk as private industry sources for lenders to finance and insure home loans dried up and mortgage default rates rose to record highs.
“I don’t want to leave the impression that the reserves are adequate, that we have plenty of money,” said Donovan, whose department includes FHA. “FHA is not in the long-run self supporting, it isn’t returning money to the taxpayer.”
Donovan said the economy is worse than housing officials expected and projected claims against the insurance fund are higher than forecast. The fund is already below the 2 percent reserve threshold FHA is required to maintain by Congress and Donovan said it’s “critical” to build that cushion back up.
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If we don't change our ways soon...
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