September 18, 2009

FHA faces declining reserves

Federal Housing Administration Commissioner David Stevens said an independent audit will show FHA reserves have dropped below their mandated limit.

The FHA, which now insures almost 25 percent of the nation's new mortgages, has been hit with escalating defaults. For the first time in its 75-year history, it could be forced to ask Congress for emergency assistance, The Washington Post reported Friday.

It could also raise premiums for borrowers, but raising prices would be politically unpopular as the housing market has only recently begun to recover from a prolonged slump.

Congress has mandated the FHA keep reserves at 2 percent or more of all loans it guarantees.

There's nothing more serious that we're addressing right now, outside the housing crisis in general, than this issue, Stevens said.

Stevens said the FHA was absolutely not going to Congress and asking for money.

Instead, he proposed a series of measures, including hiring a chief risk officer and having lenders raise their own reserves that cover cases of fraud.