There’s been a lot of talk lately about a study showing FHA coming very close to dropping below the federally mandated capital reserve ratio of two percent. People are worried that without the two percent financial cushion, FHA won’t be able to cover its potential losses.
But FHA has been very clear that it still holds more than $30 billion dollars in its reserves, which is enough to cover any future losses. FHA’s credit insurance also means that homeowners and bond holders are at zero risk, even if the reserves do fall below two percent.
Dave Stevens, FHA’s commissioner, has acted quickly and is appointing a Chief Risk Officer and is implementing a set of policy changes focused on ensuring responsible lending and risk management for FHA-approved lenders. You can read FHA’s statement here for yourself.
In 2007, FHA serviced three percent of home loans. Today, they service 28 percent. FHA is VITAL to our industry.
The good news is that Stevens has said he does not foresee a need for a federal bailout, unlike private banks and Fannie and Freddie.
NAR continues to support FHA’s mission. NAR President Charles McMillan and Stevens have met several times in the past few weeks to discuss the Home Valuation Code of Conduct.
NAR and FHA continue to work together to make the housing market as safe and functional as possible. Charles will be blogging about his meetings in the next few days so keep checking back to hear his update. — Gary Thomas, 2009 NAR Vice President and Liaison to Government Affairs