FHA takes steps to avoid bailout

WASHINGTON — The Federal Housing Administration, a government agency that insures mortgages, said it was taking steps to shore up its books and avoid a taxpayer bailout.

An independent audit released on Friday projects the agency’s losses will swamp its revenue, with a shortfall of $16.3 billion in its portfolio of insured home mortgages. That has raised the question of whether it will need an infusion of cash from taxpayers for the first time in its eight-decade history.

‘‘This is the first time that they’ve totally run out of money,’’ said Representative Spencer Bachus, a Republican from Alabama, speaking with reporters Thursday. ‘‘They have about $600 million, as I understand, that they’re burning through. And within a month, because of the number of foreclosures, they indicated they will have to come to the American people and ask for money.’’


But federal housing officials stressed that the shortfall was projected, and that they were adopting measures to avoid tapping taxpayer funds. Shaun Donovan, the secretary of housing and urban development, announced a series of steps to reduce losses and increase revenue at the FHA.

Get Talking Points in your inbox:
An afternoon recap of the day’s most important business news, delivered weekdays.
Thank you for signing up! Sign up for more newsletters here

These measures include bumping up annual mortgage insurance premiums on new loans by 10 basis points. That will cost borrowers about $13 a month, Donovan said. The FHA will also sell off about 10,000 delinquent loans each quarter, increase short sales of homes where the loan exceeds the value, and amplify its efforts to keep families in their homes, avoiding costly foreclosures.

The FHA expects these changes, plus other measures it recently put into effect, to contribute $8 billion to $10 billion to its overall value in fiscal 2013 and 2014.

The agency also is asking Congress for new administrative capabilities to better manage its portfolio of loans and cut losses. ‘‘We need help from Congress,’’ Donovan said.

Despite the projected shortfall, the FHA does not have an immediate need for cash, housing officials stressed.


“This does not mean FHA has insufficient cash to pay insurance claims, a current operating deficit, or will need to immediately draw funds from the Treasury,’’ a statement from the agency said.

The determination on whether FHA needs to draw on the Treasury will come next fall, said housing officials. The FHA will reassess its books as the fiscal year ends in September, and might request a bailout to shore up its capital ratio at that point.