The Obama Administration has donned a pair of rose-colored glasses with their “budget” forecast, particularly with regard to the subprime insurers, the FHA.
March 4 (Bloomberg) -By Clea Benson- President Barack Obama’s fiscal-year 2015 budget projects the Federal Housing Administration won’t require a taxpayer subsidy this year as the agency’s efforts to shore up its finances have offset losses from defaulted loans.
The government mortgage insurer has been raising fees and tightening underwriting to pay for a wave of soured mortgages it backed as the housing bubble burst. Last year, the FHA required a $1.7 billion cash infusion from the Treasury, the first ever in its 80-year history. The agency must keep enough cash on hand to cover all projected future losses.
The Obama administration is pressing Congress to pass legislation that would give FHA more authority to crack down on bad lenders and require mortgage servicers to hire outside help if they have a poor track record of aiding delinquent borrowers, according to a White House budget proposal released today.
The Department of Housing and Urban Development, FHA’s parent agency, “is pursuing a comprehensive legislative package which will give FHA the tools it needs to build upon the many administrative steps it has taken since 2009 to strengthen FHA Single Family Programs,” the budget proposal said. “These items will allow FHA to enhance enforcement, create certainty for FHA approved lenders, and enhance loss mitigation opportunities for borrowers with FHA approved loans.”
An independent actuary, using a different formula than the White House budget writers, said in December that the FHA’s insurance fund was still $1.3 billion short for the fiscal year that ended Sept. 30.
The FHA has until the end of the current fiscal year to make a final determination of whether it will require aid from the Treasury this year.
The agency insures $1.1 trillion worth of mortgages and backs about 17 percent of the U.S. loan originations for home purchases, more than quadruple the 4 percent share it covered in 2007, before the credit crisis. About 8 percent of FHA-insured loans were at least 90 days delinquent in October, down from 9.5 percent a year earlier. Loans unpaid for at least 90 days are considered likely to default.
Residential loans in the U.S. are back to 2000 levels after the catastrophic collapse pf house prices and the rise in unemployment in 2008 and 2009.
Mortgage loans were positively correlated to house prices (CoreLogic’s house price index) until 2012 when they began to separate.
The FHA’s serious delinquencies are correlated with the unemployment rate. So further declines in the unemployment should correlate with declined serious mortgage delinquencies, barring an unexpected shock in the economy or housing market.
Bear in mind that the Obama Adminstration has a rosy forecast for the economy with regard to debt, that differs from the Congressional Budget Office (CBO).
And there are other disturbing economic trends that may cause the FHA forecast to be overly-rosy.
Rose-colored glasses or full speed ahead? We shall see.