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Obama expects FHA bailout to be $943M

President Barack Obama speaks in the Rose Garden

President Barack Obama speaks in the Rose Garden on his proposed budget. With him is Jeffrey Zients, acting director of the Office of Management and Budget. (April 10, 2013) Credit: Bloomberg News

WASHINGTON - The cash-strapped Federal Housing Administration may need a $943 million taxpayer bailout to cover expected losses from loans it insured as the U.S. housing bubble was deflating, the Obama administration said April 10.

It would be the first bailout of the government’s mortgage insurer in its nearly 80-year history.

The FHA, which has struggled to manage a glut of delinquent mortgages, will likely need the bailout  given the shortfall in its reserves, the administration said in President Barack Obama’s fiscal 2014 budget proposal.

FHA Commissioner Carol Galante said the agency might still be able to avoid taking aid from the U.S. Treasury despite the projected budget hole. The agency has until Sept. 30 to decide whether it needs a cash infusion.

"FHA, while still under stress from legacy loans, has made significant progress and is on a sound fiscal path forward," Galante told reporters on a conference call. "We are continuing to act and do everything possible to ensure that the impact of these legacy loans .?.?. are corrected as soon as possible."

The FHA is required by Congress to keep enough cash on hand to cover all expected future losses and must take a taxpayer subsidy if its projected revenue falls short.

The agency provides liquidity to the housing market by insuring lenders against losses on loans. Currently, it backs $1.1 trillion of loans and is a primary source of funding for first-time home buyers and those with modest incomes.

If the FHA does end up needing to draw on taxpayer funds, the amount of aid "could be a little higher, it could be a little lower" than the White House projected, Galante said. "But I would not expect a major change."

In November, an independent audit found that the FHA faces projected losses of $16.3 billion and was at risk of depleting its cash reserves.

Since then, the FHA has a taken a number of steps to shore up its books, including charging borrowers higher premiums. In addition, housing prices have continued to recovery, further helping to strengthen the agency’s balance sheet.    

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