Federal Housing Administration (FHA) Reverse Mortgage Losses May Require Bailout

The FHA may need as much as a $1 billion rescue package before the
end of the year to bolster its reserves despite efforts to shore up its
finances with higher mortgage insurance premiums. FHA Commissioner Carol
Galante said her agency, which insures some 40 million home mortgages, is
struggling with more than $5 billion in losses on reverse mortgages that allow
people over 62 to borrow against their home equity and use the money for living
expenses. Galante said the FHA played a crucial role in bringing the housing
market back from the brink of collapse, but at a heavy financial price to
itself. The FHA is required by law to maintain reserves equal to two percent of
the total amount of home mortgages it insures. It currently has about $32
billion in reserves. The agency, created during the Great Depression to create
more affordable home ownership opportunities, insures more than $1 trillion in
mortgage loans to primarily low-to-moderate-income families and first-time
homebuyers. The Obama administration said in its fiscal 2014 budget request
that FHA would probably need $943 million in taxpayer assistance to bolster its
reserves to cover losses from loans it insures. The government's mortgage
insurer has until September 30 to decide whether or not it will need the cash
infusion from the Treasury, which does not require congressional approval.

Source/more: Associated Press