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FHA aims to avoid bailout after $16.3B mortgage insurance shortfall

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Although its home mortgage insurance fund ended fiscal 2012 with a $16.3 billion shortfall, the Federal Housing Administration said Nov. 16 that doesn't mean it'll need a bailout.

The FHA insures home loans with relatively low down payments; homeowners pay the cost of the insurance as part of their monthly payments. The FHA pays the lender if the homeowner defaults.

To avoid a bailout for the fund, the agency said it will increase the annual insurance premium for new loans, which it estimated will cost the average borrower an extra $13 each month.

Additionally, it plans to sell at least 10,000 distressed loans per quarter over the next year and also expand short sales of homes to reduce the chance of foreclosure, which is expensive for the fund.

If the FHA does need a bailout, it won't need approval from Congress. Federal loan and loan guarantee programs can draw funds from the Treasury to cover losses. If that is to happen, the FHA says it will know in September, near the close of fiscal 2013.

The agency noted, though, that the audit that found the shortfall used house-price appreciation forecasts that do not include the rise in home values that has occurred since June.

It also pointed out that the decline in interest rates is costly for the fund because borrowers can pay off their mortgages as they refinance. But even though that decreases the value of the fund, it's good for borrowers and the overall economy, the agency says.

The fund continues to suffer from losses totaling about $70 billion from loans insured between fiscals 2007 and 2009.

It does have enough cash to continue to pay insurance claims though, the agency notes.

For more:
- go to the FHA's Nov. 16 statement

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