WASHINGTON — A federal housing agency said Friday it needs a $1.7 billion bailout from the Treasury to cover projected losses in its reverse mortgage programs, which allow seniors to borrow against their homes for everyday living expenses.
Federal Housing Administration commissioner Carole Galante told Congress in a letter that her agency will withdraw the money from the Treasury before the fiscal year ends Monday. Congressional approval is not required. The cash infusion is the first in the agency’s 79-year history.
The agency, which insures 40 million home mortgages, is struggling with $5 billion in losses on its reverse mortgage program.
Reverse mortgage borrowers, who must be 62 or older, can take lump-sum or monthly payments. They still must pay property taxes and insurance. Sale proceeds from a home go to the lender when the borrower dies or moves out.
The FHA suffered big losses when many borrowers took large payments upfront and later ran into financial problems.
The FHA is required by law to maintain reserves equal to 2 percent of the total amount of home mortgages it insures.