Twists and turns led the housing market into uncertainty in 2011, with concerns about undercapitalization for the ""Federal Housing Administration"":http://portal.hud.gov/hudportal/HUD?src=/federal_housing_administration (FHA) driving a feeding frenzy on Capitol Hill and around the nation about the fate of a time-honored agency.[IMAGE]
A report by ""Joseph Gyourko"":http://real-estate.wharton.upenn.edu/people/faculty.cfm?id=805, a University of Pennsylvania real estate and finance professor, leveled claims in November that the FHA's failure to answer more than $1 trillion in insurance-in-force with $2.6 billion in capital reserves may damn it to its place as the next housing bailout.
Gyourko alarmed lawmakers, policymakers, and company executives alike with notions that the agency could require as much as $50 billion to $100 billion in bailout funds from the Treasury Department.
""Edward Pinto"":http://www.aei.org/scholar/edward-j-pinto/, a resident fellow with the ""American Enterprise Institute"":http://www.aei.org/ and onetime EVP for Fannie Mae, tells us the FHA is ""building up a very large book that has a lot of assumptions. If anything happens-if the FHA's projections are based on inaccuracy, or the circumstances change-they'll go into the red and taxpayers will be on the hook.""[COLUMN_BREAK]
He faults a growth strategy that led the FHA to insure 7 million mortgages by August ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô a policy that he says the flailing agency continues despite failing to keep enough capital on hand for the Mutual Mortgage Insurance Fund to stay above a minimum 2-percent threshold required by law.
By predicting a shortfall for the FHA - and a multibillion-dollar cash draw by simple requirement - Gyourko's report put Capitol Hill in a fighting mood.
FHA Acting Commissioner Carole Galante's nomination recently passed the Senate Banking Committee by a razor-thin 13-9 margin, with Sen. ""Jim DeMint"":http://demint.senate.gov/public/ (R-South Carolina) urging colleagues to vote against her over a need for ""people... with a sense of urgency"" in the administration.
Speaking at the same hearing November, Patrick Sinks, president and COO of Mortgage Guaranty Insurance Corp., called for an increase in FHA's insurance premiums to the maximum legal limit, which falls somewhere between 1.50 percent and 1.55 percent ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô a blow that would raise down payments to 5 percent accordingly.
""During the real estate boom, [the FHA] had an incredibly small share of business,"" says Rick Sharga, EVP with ""Carrington Mortgage Holdings, LLC"":http://www.carringtonhc.com/default.aspx. ""Now they're such an important part of the overall business that it's almost unimaginable to think of them as not being a vital part of the housing market infrastructure.""
As for Gyourko?
Writing in his report, he cast overoptimistic forecasts by the agency as one that ""leaves a quick and substantial economic and housing market recovery as the primary way for FHA to avoid generating substantial losses for American taxpayers,"" he wrote. ""That certainly is to be hoped for, but hope is not a sound foundation on which to run what is now a trillion dollar entity.""