1Center or American Progress | The Federal Housing Administration’s 2012 Actuarial Report
The Federal Housing Administration’s 2012 Actuarial Report
John Griffith November 19, 2012
Te Federal Housing Adminisraion’s acuarial repor or scal year 2012 projecs ha he governmen-run morgage insurer could soonrequire axpayer suppor or he rs ime in is 78-year hisory. According o he repor, he agency’s primary insurance und has a
“economic value” o $16.3 billion, meaning i does no have enough money o cover all expeced claims
over the next 30 years
Here are seven key poins o consider:
The Federal Housing Administration is not running out of cash anytime soon.
Te agency sill has $30.4 billion in is coers osetle insurance claims as hey come in. Bu according o ederal budge rules, he agency mus hold enough capial o cover all expecedclaims over he nex 30 years, which would require abou $46.7 billion according o is acuaries. Ta leaves a long-run shorall o $16.3 billion.
This report does not mean the Federal Housing Administration will definitely require taxpayer support.
Te acuarialrepor is mean o help he agency wih is annual budgeing process. I will be monhs beore we know wheher he Federal Housing Adminisraion will require suppor rom axpayers and how much ha suppor will cos. In he meanime, he agency is expeced ogenerae $11 billion in revenues hrough he remainder o he scal year, which will help shore up he capial reserve.
If the Federal Housing Administration does require support, taxpayers would be getting a bargain.
Wihou he agency’shelp in recen years, i would have been much more dicul or middle-class amilies o access morgage credi since he housing crisis began. According o Moody’s Analyics, he agency’s acions prevened home consrucion rom plummeing 60 percen rom already depressed levels and home prices rom dropping an addiional 25 percen. Tis would have sen our economy ino a double-dip reces-sion, cosing 3 million jobs and hal a rillion dollars in economic oupu.
The Federal Housing Administration’s current financial troubles are the result of a prolonged foreclosure crisis and a fewpoor policy decisions.
Te bulk o he agency’s losses come rom loans originaed beween 2007 and early 2009. A large percenage o hose loans included so-called “seller-nanced down paymen assisance,” where sellers covered he required down paymen a he ime o purchase, bu oen raudulenly infaed he purchase price o make he ransacion worhwhile. I he agency had never allowed seller-nanced loans in is insurance programs i could have avoided more han $15 billion in losses and would no need axpayer suppor oday.
The Federal Housing Administration’s basic business model of sustainable low-down-payment lending is still profitable.
Te agency’s more recen years o business, roughly 70 percen o which had down paymens o less han 5 percen,
are likely o besome o is mos proable ever due in par o higher ees and new proecions pu in place by he Obama adminisraion.
If the Federal Housing Administration does need to draw money from the U.S. Treasury, it would not be a “bailout.”
According o he budge rules governing all ederal credi programs, i he agency does no have enough money o cover all expeced claimsover he nex 30 years, he U.S. reasury auomaically lls he gap—here would be no need or Congress o ac.
Te chance o ha sup-por has always been par o he agreemen axpayers made wih he Federal Housing Adminisraion, daing back o he 1930s.
It’s actually quite remarkable that the agency made it this far without support.
In he wake o he crisis, mos privae mor-gage insurers have eiher gone ou o business
or signicanly scaled back heir insurance aciviy,
while he Federal Housing Adminisraion increased is business.
So he agency has acually ouperormed is counerpars in he privae secor.
John Grifth is a Policy Analyst with the Economic Policy team at the Center or American Progress.