The Real Deal New York

FHA losses could force taxpayer bailout, according to report

November 11, 2011 05:38PM

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As the Federal Housing Administration prepares to release its annual financial report next week, there’s growing concern that the agency could run out of money and seek a taxpayer bailout for the first time ever.

The Wall Street Journal cited a report by University of Pennsylvania professor Joseph Gyourko that estimated the agency stands to lose $50 billion in the coming years because of the larger role it has taken in mortgage loan originations since the housing bust. Gyourko said the FHA is underestimating the potential impact of prolonged high unemployment and fallout from the homebuyer’s tax credit in its internal calculations.

Unless a swift recovery drives housing prices and wages up in the near future, the agency may be too broke to exist without taxpayer help — and it has indefinite budget authority to draw on Treasury Department funds without congressional approval.

The Journal said these findings could have political implications that negatively affect the housing market. Republicans may use the data to urge the FHA to increase its down payment and insurance premiums on loans. [WSJ]

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