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FHA May Request Treasury Infusion
WASHINGTON (4/12/13)--The Federal Housing Administration (FHA) may need a $943 million credit from the U.S. Treasury in October to make certain sufficient reserves are on hand today to cover projected losses over the next 30-years, FHA Commissioner Carol Galante said this week.

In a release, Galante said the FHA is still under stress from loans insured in 2009 and earlier, and from mortgages insured under its reverse mortgage programs. However, she added, the FHA "is taking every appropriate action to reduce the likelihood" that Treasury assistance is needed going forward. The FHA has not required this type of appropriation from the Treasury in the past, agency staff told News Now.

The FHA's single-family insurance fund is currently facing a projected shortfall of $16.3 billion due to mortgage loan defaults by borrowers, and House Financial Services Committee Chairman Rep. Jeb Hensarling (R-Texas) and others have called for serious reforms to the agency.

Legislation that would strengthen the FHA and help ensure that agency's long-term solvency was reintroduced by Financial Services Committee Ranking Member Maxine Waters (D-Calif.) last month. The bill, known as the FHA Emergency Fiscal Solvency Act (H.R. 1145), would give the FHA greater flexibility to take action against loan originators that have high loan losses or take part in faulty underwriting; and authorize the FHA to require indemnification for improperly written loans.

The agency earlier this year announced some of its own reforms that could help improve its financial condition and manage and protect its single-family insurance programs. The changes will also encourage the return of private capital to the housing market. Galante last year said she would consider down payment requirement and insurance pricing changes to protect the FHA against losses on high-balance loans that are outside Fannie Mae and Freddie Mac conforming loan limits. This change could also help to scale back the government's footprint in the housing market, the FHA said.

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