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HUD Secretary Speaks on Possibility of FHA Bailout

The Obama administration released Wednesday its budget proposal for fiscal year (FY) 2014, revealing that the ""Federal Housing Administration"":http://portal.hud.gov/hudportal/HUD?src=/federal_housing_administration (FHA) may require a bailout of up to $943 million to reinforce its capital reserves.

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The agency has drawn fire in recent months over the losses it took from insuring risky loans before the crisis. According to a third-party ""actuarial review"":http://dsnews.comarticles/fha-mmi-fund-in-negative-agency-says-it-wont-need-immediate-treasury-draw-2012-11-16 released last year, FHA's Mutual Mortgage Insurance (MMI) Fund had ended FY 2012 with a negative value of $16.3 billion.

Since then, FHA and HUD have taken a number of steps to reinforce the fund and prevent a Treasury draw, including raising FHA insurance premiums and putting a moratorium on

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its full-draw reverse mortgage program, which HUD Secretary Shaun Donovan says has been a drag on the agency's budget.

In a conference call with reporters, Donovan explained the ground gained from the estimated $16.3 billion shortfall to today's estimated $943 million deficit is the result of newer, safer business expected this year.

""How we get to the negative $943 million is a combination of things. First, it looks at what revenue do we expect to come to the fund from new loans that we're making this year. And given that new loans that FHA's making are 'profitable,' if I can use that term ... that's why we have over $14 billion in receipts this year for FHA and Ginnie Mae,"" Donovan commented.

He also added that HUD has taken steps to increase recoveries on older loans, including proposing legislation to increase the agency's enforcement powers over the risky loans that caused damage to the MMI Fund during and after the crisis.

In a separate conference call, FHA Commissioner Carol Galante acknowledged that the agency's potential draw ""could be a little higher [or] could be a little lower"" than the administration's projected number. However, the amount required--or the necessity of a bailout altogether--won't be determined until the end of this fiscal year, October 1.

Should FHA need a draw, it would be a first on the agency's 79-year history.

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