The Obama administration soon may be forced to subsidize the government’s mortgage insurance program with taxpayer dollars as economic troubles cause defaults and foreclosures to surge.
No decision has been reached, officials said today at a Senate subcommittee hearing focused on the fiscal health of the Federal Housing Administration. But if the agency’s losses grow too high, the FHA would be forced to raise money — either by increasing insurance premiums on new borrowers or seeking a subsidy from the federal budget.
President Barack Obama’s housing secretary, Shaun Donovan, told senators that officials are evaluating whether aid for FHA will be needed as part of the administration’s $3.6 trillion budget for next year.
However, Donovan said FHA is “unlikely to face the catastrophic losses borne in the subprime sector.” That’s partly because the agency has more conservative standards than the subprime lenders that fueled the housing boom. It also didn’t back loans for more expensive properties that have plummeted in value, particularly in places like California, he said.
As of February, 7.2 percent of loans backed by the FHA were either 90 days overdue or in foreclosure, up from 5.8 percent in August.
“Based on the numbers we’re seeing, I think it’s going in the wrong direction,” said Kenneth M. Donohue, inspector general for the Department of Housing and Urban Development. (AP)
