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FHA Calls Claims It Will Need Taxpayer Bailout a Myth

After a forecast from Moody's Analytics hinted that the Federal Housing Administration (FHA) is at risk of requiring a taxpayer bailout, the agency released a myths and facts sheet and categorized speculation about a bailout as myth.


""Sweeping changes enacted by FHA since 2009, including an important series of recent steps such as the enforcement actions that resulted in over $900 million in compensation to FHA from settlement agreements with major banks, and further increases to FHA's insurance premiums, it is unlikely that FHA would require additional resources from the U.S. Treasury in FY 2012,"" the FHA stated.

Though, the explanation under the ""fact"" section does further state that assistance from the Treasury would be needed if losses on the most stressed books of business, which were between 2005 and 2009, increased substantially.

In an interview with ""Bloomberg"":http://www.bloomberg.com/news/2012-03-27/fha-bailout-risk-looming-larger-after-guarantee-binge-mortgages.html, New York University economics professor, Andrew Caplin told the news organization that losses will be deeper than the FHA predicts, in part because the agency uses a home-price index that excludes distressed sales.

While recent economic data has pointed towards a gradual recovery for the housing market, reports do show declining home prices still, including the recent Case-Shiller Home Price Indexes, which showed prices fell for the fifth straight month in January.

Experts and economics also expect home prices to fall 0.7 percent this year, according to the March 2012 Zillow Home Price Expectations Survey.

The FHA fact sheet did state that HUD still ""remains vigilant in monitoring housing market conditions and FHA portfolio performance.""

In February, the FHA announced that it would increase its annual mortgage insurance premium (MIP) by 0.10 percent for loans under $625,500, and by 0.35 percent for loans above that amount. Upfront premiums (UFMIP) will also increase by 0.75 percent.

The increases are projected to contribute more than $1 billion to the depleted Mutual Mortgage Insurance Fund through 2013.

About Author: Esther Cho


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