Bailout Net to Catch FHA?

NationalMortgageNews states the robo-signing scandal has led to such a tight pipeline in the foreclosure process that only 10,000 a month are being processed by FHA (Federal Housing Authority)-approved servicers, but that will clear as the agency pays for a surge on defaulted loans. FHA paid $14.9 billion in fiscal year (FY) 2010, but that has more than doubled to the $35.7 billion it will pay this FY, which began Oct. 1. The bottleneck is currently jammed due to the nearly 136,500 single-family loans in the foreclosure process, and 34,000 of those have been there over 12 months. This will cause FHA’s capital resources to fall in FY 2012 to $13 billion, a long drop from the $33.7 billion at the end of FY 2011, educing the capital ratio to 0.24 percent, or $2.5 billion. The agency expects to reach its statutory minimum of two percent capital ratio by FY 2014, given its better performance of loans originated since 2008, and changes in mortgage insurance premiums. But University of Pennsylvania Wharton School real estate finance professor Joseph Gyourko estimates that half of FHA-insured loans are underwater and unemployment rates are not declining, two significant triggers that lead to defaults. He suggests FHA may be the next governmental unit to need a bailout.

(Photo credit:National Association of Realtors)

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