Real Estate NewsFHA Billions: Too Much Or Too Little?
The Federal Housing Administration"s main insurance fund is in the best financial condition ever, according to an audit by a respected accounting firm. But the Department of Housing and Urban Development"s own inspector general says otherwise.
So it looks like new HUD Sec. Mel Martinez already has a problem on his hands. Here"s how it shapes up at this point:
In the waning days of the Clinton Administration, IG Susan Gaffney, who has had a running feud with former HUD Sec. Andrew Cuomo, issued a report claiming the FHA"s single-family insurance program is "beset by fraud."
FHA Commissioner William Apgar quickly denied the charges, telling the trade publication National Mortgage News the report is "unfair."
"The idea that there is massive fraud in the FHA program is not supported by the data and clearly casts a negative image on all our mortgage lending partners," Apgar told the newspaper, noting that the number of foreclosures has fallen, loss mitigation has improved, and the insurance fund was getting stronger.
In her report, Gaffney, whose office is an independent wing of HUD, called on the new Bush Administration and Congress to "examine the potential relationships between the current single-family policies to increase the home ownership rate and the rising incidence of fraud."
However, a study by Deloitte & Touche has found that the mutual mortgage insurance fund"s economic value currently stands at $17 billion and should reach $43.5 billion by 2007.
Moreover, the auditor"s report, also released in the last days of Cuomo"s watch at HUD, says the value will withstand potential economic downturns. Indeed, even under the most pessimistic scenario, the study says the fund"s value will more than double over the next six years. Economic value in this case is defined as the sum of existing capital plus the value of current insurance in force.
The report also says the FHA"s capital adequacy ratio is 3.51, which is nearly double the Congressionally-mandated goal of 2 percent. And it projects that the ratio will rise to 4.97 percent by 2007. Capital adequacy is the economic value of the fund divided by the total insurance in force.
The FHA does not make mortgages directly to consumers. Rather, it insures loans made by private lenders. Since its creation, the agency has backed more than 30 million home buyers who would otherwise be either locked out of the market altogether or forced to pay extremely higher interest rates for financing.
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