FHA Reports Cash Shortfall; Adds CRO

WASHINGTON, DC-The Federal Housing Administration just may join the long list of finance entities in the public and private sector that required a federal bailout. The housing agency reported on Friday that its cash cushion will drop below mandated levels.

The agency’s commissioner, David H. Stevens, has said that the FHA will not require federal funds in media accounts. Still, though, the agency’s finances are a concern to an already battered housing industry. A call to HUD was not returned in time for publication.

The FHA’s annual independent actuarial study is in the process of being completed – and the agency expects that it will show the capital reserve ratio dropping below two percent. FHA’s capital reserve ratio measures excess reserves above and beyond projected losses over the next 30 years. FHA continues to hold more than $30 billion in its total reserves, the agency also said in its announcement — or more than 4.4% of its insurance in force. The study will be sent to Congress in November.

As he released the expected results of the study, Stevens also said he was planning to hire a chief risk officer for the first time in the agency’s 75-year history, as well as implement a set of credit policy changes. These will reflect the Obama Administration’s goal of regulatory reform, according to the announcement. Lenders must have “skin in the game”, the FHA said, and its credit changes will ensure they have long-term interest in the performance of the loans they originate. FHA is part of the Department of Housing and Urban Development, headed by Secretary Shaun Donovan.