The Federal Housing Administration will need to draw $1.7bn from the Treasury to cover the projected losses of its reverse mortgage programs, according to a Reuters report.
This will be the first time in the FHA’s 79-year history that it has been required to tap the Treasury for an emergency cash infusion. The agency insures millions of mortgages, and has raised fees and strengthened oversight of lenders in recent years to try to bring in more revenue. However, it’s suffered big losses recently on its reverse mortgage programs, according to Reuters.
The programs allow seniors to borrow against the value of their homes for living expenses. The money is generally repaid when the borrowers die or move out of their homes. However, the FHA took a $5bn hit when many borrowers took large up-front payments and then suffered financial problems as the value of their homes fell during the housing meltdown, Reuters reported.
FHA Commissioner Carol Galante wrote Congress on Friday to say that the agency would withdraw the $1.7bn from the Treasury before the fiscal year ends Monday. The FHA does not require congressional approval to make the withdrawal.
House Financial Services Committee Chairman Jeb Hensarling (R-Texas) had sharp words for the FHA on news of the cash infusion.
“In April, the Obama administration estimated the FHA would need a taxpayer bailout of $943 million. As bad as that was, now we learn – just five months later – that the bailout will be almost twice that amount,” Hensarling said in a Friday statement.“The FHA’s $1.7 billion taxpayer-funded bailout is a shortfall equal to an astonishing 10 percent of the revenue the FHA collected this fiscal year. If the FHA was a private financial institution, likely somebody would be fired, somebody would be fined, or the institution would find itself in receivership. Instead, the FHA is merrily on its way to becoming the recipient of the next great taxpayer bailout.”