A fund used to support the Federal Housing Administration's single-family mortgage and reverse mortgage insurance programs ended fiscal year 2012 with a $16.3 billion deficit, according to an annual report submitted to Congress today.
The shortfall raises the specter that the agency will require a taxpayer bailout next year for the first time in its 78-year history.
In order to avoid a bailout, FHA will raise annual insurance premiums, sign off on more short sales, streamline sales of foreclosed properties, offer "deeper levels" of payment relief through its loss mitigation program, expand sales of delinquent loans, and, for new loans, reverse a policy instituted in 2011 that canceled required premium payments after loans reached 78 percent of their original value.
Next year, FHA plans to raise the annual insurance premium paid by borrowers on an FHA loan by 10 basis points, or 0.1 percent, which is expected to add $13 a month to the average borrower's monthly payments.
The agency has also vowed to expand its sales of delinquent loans under its Distressed Asset Stabilization Program, committing to sell at least 10,000 such loans per quarter over the next year. Because such sales require investor purchasers to delay foreclosures for a minimum of six months, they represent an opportunity for borrowers to possibly avoid foreclosure while reducing FHA's costs, according to the U.S. Department of Housing and Urban Development (HUD), of which FHA is a part.
The FHA has been hard-hit by defaults from housing bubble-era loans made from 2005 and 2008, with future losses estimated at $70 billion for loans made in 2007, 2008 and 2009 alone.
The agency has taken steps to strengthen its capital reserves in recent years, including raising mortgage insurance premiums three times in 2010 and again earlier this year. The agency has also tightened credit standards and prohibited seller funding of buyer down payments, a practice the agency now estimates will cost it more than $15 billion on loans issued before 2009.
"While the loans made during this administration remain the strongest in the agency's history, we take the findings of the independent actuary very seriously," said FHA Acting Commissioner Carol Galante in a statement.
"We will continue to take aggressive steps to protect FHA's financial health while ensuring that FHA continues to perform its historic role of providing access to homeownership for underserved communities and supporting the housing market during tough economic times."
In today's report, the FHA said its capital reserve ratio, which measures reserves in excess of what's needed to cover projected losses over the next 30 years, had dropped to -1.44 percent from an already slim 0.24 percent in 2011. Congress requires the agency to maintain a 2 percent ratio -- a mandate the FHA now projects it will meet in 2017, up from 2014 in last year's projections.