How to fix the Federal Housing Administration

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Article Highlights

  • Congress should require a safety and soundness review of FHA now.

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  • The FHA must bring a credible plan to Congress on how to deal with its insolvency.

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  • The longer it takes the FHA to return to a sound fiscal footing, the greater the risk to the taxpayer.

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Today, FHA released its FY 2012 Actuarial Study for its main single-family insurance program confirming its economic value or capital position has turned negative by $13.5 billion. This represents a deterioration of $23 billion from last year’s projection for FY 2012. The projection for FY 2018 has a total of $79 billion in plus and minus adjustments netting out to a negative $17 billion compared to last year’s projection. Swings of this amount indicate that the model FHA uses to calculate its actuarial soundness, while improved over earlier versions, continues to provide projections that are highly uncertain.

Each year, the FHA gives Congress a negative report and then says not to worry, next year will be better. But in fact, each year it gets worse. FHA’s delinquencies continue to grow with one in six FHA loans delinquent 30-days or more. The longer it takes the FHA to return to a sound fiscal footing the greater the risk to the taxpayer.

The rules FHA uses would not pass muster for a private company. My analysis indicates that, today, under generally accepted accounting principles (GAAP), the FHA has a net worth of negative $25 billion.

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About the Author

 

Edward J.
Pinto
  • American Enterprise Institute (AEI) resident fellow Edward J. Pinto is the codirector of AEI’s International Center on Housing Risk. He is currently researching policy options for rebuilding the US housing finance sector and specializes in the effect of government housing policies on mortgages, foreclosures, and on the availability of affordable housing for working-class families. Pinto writes AEI’s monthly Housing Risk Watch, which has replaced AEI’s FHA Watch. Along with AEI resident scholar Stephen Oliner, Pinto is the creator and developer of the AEI Pinto-Oliner Mortgage Risk, Collateral Risk, and Capital Adequacy Indexes.


    An executive vice president and chief credit officer for Fannie Mae until the late 1980s, Pinto has done groundbreaking research on the role of federal housing policy in the 2008 mortgage and financial crisis. Pinto’s work on the Government Mortgage Complex includes seminal research papers submitted to the Financial Crisis Inquiry Commission: “Government Housing Policies in the Lead-up to the Financial Crisis” and “Triggers of the Financial Crisis.” In December 2012, he completed a study of 2.4 million Federal Housing Administration (FHA)–insured loans and found that FHA policies have resulted in a high proportion of working-class families losing their homes.

    Pinto has a J.D. from Indiana University Maurer School of Law and a B.A. from the University of Illinois at Urbana-Champaign.

  • Phone: 240-423-2848
    Email: edward.pinto@aei.org
  • Assistant Info

    Name: Emily Rapp
    Phone: 202-419-5212
    Email: emily.rapp@aei.org

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