FHA Boss Claims No Capital Infusion Needed

September 8, 2009 No Comments »


Newly appointed FHA commissioner David Stevens responded to a WSJ report claiming the agency was in dire need of a capital infusion, saying one would not be necessary, even if the reverse ratio fell below two percent, according to National Mortgage News.

Stevens said he wouldn’t comment on the FHA’s capital position until he sees the annual actuarial study, which the reserve ratio is based on, typically completed by October.

Of course, I think we’re beyond needing a survey to prove things have gone from bad to worse at the FHA, with the reserve ratio slipping to just three percent from six percent a year earlier, barely clear of that congressionally mandated two percent minimum.

And the FHA has already requested funds to operate its reverse mortgage program, which it called “very sensitive to the projected path of long term house price appreciation.”

FHA’s total market share, which was a mere 1.9 percent in the fourth quarter of 2006, reached 23.7 percent in the fourth quarter of 2008, and had been steadily rising along with related delinquencies.

Stevens has apparently been conducting a thorough review of the FHA’s credit parameters, and changes are reportedly afoot, though it could be a case of too little, too late.

While credit tightening of the popular government-backed loan program would be a prudent move, it could also dampen a housing recovery that was heavily reliant on the FHA, which many have branded the new subprime.

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