Despite the fact that the Federal Housing Administration’s cash reserves have fallen below the amount required by Congress, acting FHA Commissioner Carol Galante told reporters on Tuesday that “while the FHA is facing the most severe economic conditions,” the agency’s “Mutual Mortgage Insurance fund capital balance remains in positive territory and its programs are actuarially sound.”
The FHA’s cash reserve status was reported Tuesday in the agency’s annual report to Congress. On the same day, the Senate Banking Committee held a hearing on oversight of the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, while the House Financial Services Committee was marking up a bill introduced by its chairman, Rep. Spencer Bachus (left), R-Ala., that would suspend the current compensation packages for the senior executives of Fannie and Freddie and instead put these executives on the federal government pay scale.
A spokesman for Housing and Urban Development (HUD) told AdvisorOne that at the end of fiscal year 2011, the FHA MMI Fund’s total capital reserves stood at $33.7 billion, $400 million more than one year ago.
However, the fund’s capital reserve account holds a balance of $4.7 billion, or, stated another way, has a capital reserve ratio of under 0.3%; Congress requires that the capital reserve ratio be at least 2%. The drop in the capital reserve ratio over the past couple years, which is the first drop for FHA, “is attributed to increased insurance claims prompted by the current housing conditions, and certainly that includes the drop in home values, which limits the amount we can recover from the resale of these homes,” the spokesman said.
Sen. Tim Johnson, D-S.D. (left), chairman of the Senate Banking Committee, said during his opening remarks at the FHFA hearing that Fannie Mae and Freddie Mac together “backstop approximately $5 trillion in mortgages and help support the nearly $11 trillion U.S. mortgage market.” Unfortunately, he continued, “that market is now supported by $170 billion in assistance from the taxpayers.”