The Federal Housing Authority was forced to dip into its $21 billion capital reserve fund to cover $4.6 billion in losses from its seller-financed mortgage down payment program.
“We had to book an additional $4.6 billion in unanticipated long-term losses, mostly due to the increased number of certain types of seller-funded loans in the FHA portfolio,” FHA commissioner Brian D. Montgomery said yesterday at the National Press Club in Washington. The Federal Housing Authority is a division of the Department of Housing and Urban Affairs.
Despite the loss, he stressed that the FHA was fundamentally sound.
“Let me repeat: FHA is solvent,” he said.
Mr. Montgomery also added that the FHA has been self-sustaining for its entire 74-year history, which was “pretty unique for a federal program.”
However, he explained that “no insurance company can sustain that amount of additional costs year after year and still survive. Unless we take action to mitigate these losses, FHA will soon either have to shut down or rely on appropriations to operate.”
The FHA is trying to mitigate the deficit by attempting to push the Real Estate Settlement Procedures Act through Congress.
The bill would “require all mortgage lenders and brokers to clearly display an estimate of all settlement services, fees, and charges.”
Montgomery added that the FHA was “committed to finalizing this rule before the end of the [current] administration.”
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