FHA bailout possible, Obama official concedes
By The Los Angeles Times
Published: Thursday, Dec. 6, 2012, 6:42 p.m.
WASHINGTON — A top Obama administration official said on Thursday that he could not guarantee that efforts to shore up a key government housing agency won't save it from needing a taxpayer bailout next year.
Housing and Urban Development Secretary Shaun Donovan cautioned senators worried about the increasingly precarious finances of the Federal Housing Administration that making hasty changes to its operations could endanger the housing recovery.
Sharp revisions to the FHA's standards for insuring mortgages — often for first-time, lower-income homebuyers — could dampen the recovery and lead to more foreclosures that further reduce the size of the fund the agency uses to cover its losses.
“We are seeing a recovery, but it is still fragile,” Donovan told the Senate Banking Committee. “We don't want to hurt the market, and in turn the FHA fund, by going too far and stopping that recovery.”
But several senators were critical of the way the FHA operates and the steps taken over the past four years by HUD, which oversees the agency, to stabilize its finances.
The FHA, for example, insures mortgages with as little as 3.5 percent as a down payment and has backed loans for people who went through foreclosures as recently as three years earlier.
The agency said last month that its reserves to cover losses dropped into negative territory for the fiscal year that ended Sept. 30.
Under law, the FHA's net worth must not drop below 2 percent of the outstanding balances of the loans it guarantees.
With the collapse of the housing market, the agency's “reserve ratio” has been dropping since 2006 and ended the 2012 fiscal year at minus-1.44 percent.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- 2 NYC buildings collapse in explosion; 2 dead
- Wikileaks founder teases about more secrets to be released
- Prostitution found to have vast economic impact
- 5th Amendment cited in N.J. bridge inquiry
- Floodwaters fall in Montana, Wyoming
- Oklahoma governor’s daughter regrets wearing Native American headdress
- Expats renounce citizenship over U.S. tax hassles
- Scientists: Test West Coast for Fukushima radiation
- Changes to Medicare drug coverage scrapped
- General gets OK to pursue plea deal
- Shuster plans oversight for DUI program