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Administration 2014 Budget Projects Nearly $1 Billion FHA Shortfall

Sorohan, Mike
The Obama Administration yesterday submitted its fiscal 2014 budget, a $3.77 trillion proposal that mixes more than $1 trillion in spending and new taxes but also more than $1 trillion in budget cuts that target previously untouchable programs such as Social Security and Medicaid.

The budget (http://www.scribd.com/doc/135128092/President-Obama-s-2014-budget-proposal) provides HUD with $47.6 billion for fiscal 2014, an increase of $4.2 billion or 9.7 percent above 2012 levels. More than 90 percent of this funding increase would maintain current levels of rental and homelessness assistance, most who earn less than 30 percent of their area’s median income.

HUD Secretary Shaun Donovan said the department reduced an estimated $16.3 billion budget shortfall forecast from a 2012 actuarial report of FHA’s Mutual Mortgage Insurance Fund to $943 million. He cited the drop on steps taken to shore up FHA’s finances, as well as a different calculation method than used in the actuarial report.

“When the actuarial review for FHA was completed last fall, it showed about a $16.3 billion shortfall. This budget, which uses more conservative variables to do the forecast, shows just under $1 billion,” Donovan said at a news conference yesterday. “If you did an apples-to-apples comparison of the assessment that was done in 2012 and the president’s [2014] budget, the deficit would have been about $3 billion larger, or more than $19 billion, instead of $16.3 billion.”

Donovan cited increased efforts to improve the recovery rate of 2007-2009 vintage loans “which have caused so much trouble;” a moratorium on the Home Equity Conversion Mortgage loan program, also known as reverse mortgage loans; and increases in mortgage insurance premiums, all of which he said would result in more than $14.5 billion in projected receipts. “All of these have been positive changes,” he said.

Despite the dramatic drop, the deficit leaves open the possibility that FHA will need to draw additional funds from the Treasury Department; by law, Congress requires FHA to have cash on hand to cover all expected future losses and draw a taxpayer subsidy if revenue falls short.

In a separate conference call yesterday, FHA Commissioner Carol Galante said could still avoid asking Treasury for a cash infusion; FHA has until September 30 to decide. If FHA did request funds, it would represent the first draw-down in the department’s 80-year history.

"FHA, while still under stress from legacy loans, has made significant progress and is on a sound fiscal path forward," Galante said.

Donovan also remained indefinite on the possibility, noting “we do continue to have more than $30 billion in cash reserves and no decision will be made between now and Oct. 1.”

Donovan said HUD will ask Congress for a series of legislative changes that would enable the department to collect monies more effectively and to improve the HECM program.

“We believe there are a series of changes that are needed to better implement the program and to protect seniors,” Donovan said. “Currently, the only way to make those changes is through a full comment and rulemaking period. Without changes, we will have to take drastic steps to reduce the draw [from the HECM program] and further steps that would make the program unusable. Only if we get this legislative authority to make these changes without a rulemaking process--through a mortgagee letter--can we make changes quickly.

The HUD budget request also includes $37.4 billion to provide rental housing assistance to 5.4 million low-income families and nearly $2.4 billion in homeless assistance grants through HUD’s Continuum of Care and Emergency Solutions Grant, as well as 10,000 new rental vouchers through the HUD-VA Supportive Housing Program to provide permanent housing to homeless veterans.

“We want to keep Ginnie Mae and FHA strong, and that is one of the principles of this budget,” Donovan said. “FHA and Ginnie Mae have been critical to the market’s recovery.”

Link to HUD fiscal 2014 budget: http://portal.hud.gov/hudportal/HUD?src=/fy2014budget.