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Loan Modification

: Mortgage Lender Implode-o-Meter

FHA Head: Agency Capital Reserves Strengthening

By Implode-Explode Heavy Industries

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The head of the Federal Housing Administration, which some critics say could be headed for a government bailout, will tell Congress Wednesday that his agency is ?making progress? on rebuilding its depleted capital reserves, according to his testimony released Tuesday.

Last year, an independent auditor found a $12.8 billion shortfall in the FHA?s Congressionally-mandated capital reserve fund. The FHA insured piles of dicey loans in 2005, 2006, 2007 and 2008 that have been going bad. It insures nearly $900 billion in home loans.

But FHA commissioner David Stevens will tell the House Financial Services Committee, which posted his testimony to its Web site late Tuesday, that because of recent agency reforms; higher insurance premiums, and other measures, its capital position increased by $450 million in the first three quarters of the year, instead of decreasing by $2.6 billion, as the auditor projected.

Of course, since they haven't bothered to claw back the numerous FRAUDULENT loans which were issued into FHA, they're having to rely on hitting new buyers with higher premiums to fill the gap. Most of the $12.8 billion "funding gap" would not be there without the losses due to seller-funded downpayment loans, according to FHA's own disclosures.

We suspect you will never see Stevens get tough on this sort of thing and actually make the fraudsters pay up, since he was involved in related strains of FHA abuse, i.e. "rainy day" loan insurance (another form of lender/seller concession meant to conceal loan default rates for "compare ratios", as is being investigated by the FBI in the LendAmerica suit.)

To FHA's credit, they did get Congress to explicitly "outlaw" SFDPA through legislation in 2008 (the wrong venue for punitive/remunerative action for fraud), which probably explains why the loss rates have been better than expected in recent quarters.

Full post as published by Mortgage Lender Implode-o-Meter on September 22, 2010 (boomark / email).