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STATEMENT: CAP’s Julia Gordon on the Federal Housing Administration’s Financial Status

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Contact: Katie Peters
Phone: 202.741.6285
Email: kpeters@americanprogress.org

Washington, D.C. — Today the Federal Housing Administration, a government-run mortgage insurer, released its fiscal year 2012 actuarial review and financial report to Congress. The actuarial review predicts a negative ”economic value” for the Federal Housing Administration’s insurance fund, meaning the agency does not have enough money to cover all expected insurance claims over the next 30 years. This could require the agency to seek support from the U.S. Treasury for the first time in its 78-year history.

Julia Gordon, CAP’s Director of Housing Finance and Policy, issued the following statement:

Today’s news reflects the almost inevitable result of the Federal Housing Administration stepping into the breach after the housing bubble burst and private capital fled the housing market. By living up to its congressional mandate to provide support to the housing market in hard times, the Federal Housing Administration not only funded home loans for 7 million families, but prevented even more catastrophic home price declines. Such declines could have cost 3 million additional jobs and sent our economy spiraling into a double-dip recession.

The $16.3 billion shortfall reported today does not mean that the Federal Housing Administration has run out of cash or that the American taxpayer will need to pay anywhere near that amount out of Treasury funds. The agency still has more than $30 billion to settle immediate claims. But federal budgeting rules require the agency to hold enough capital to cover all claims over the next 30 years.

Nor does it mean that the Federal Housing Administration’s basic business model is flawed. To the contrary, the report predicts that in several years, the agency’s fund will be back in the black and the agency will resume generating revenue as it has for so many years. This turnaround will be a result of market stabilization as well as better management, targeted policy changes, and adjusted premiums, including the new measures announced today.

We hope today’s report opens a robust conversation about the future of housing finance and the Federal Housing Administration’s role in the housing market going forward.

Related resources from CAP:

To speak with a CAP housing expert, please contact Katie Peters at kpeters@americanprogress.org or 202.741.6285.

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