Federal Housing Administration May Need Bailout

Reverse mortgages are to blame, and the agency has until Sept. 30 to determine whether it needs to tap the treasury. The FHA commissioner said in a statement that if not for the reverse mortgages, the agency would have had a $4 billion surplus at the end of the year.

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DAVID GREENE, HOST:

Now, the Federal Housing Administration might need its first bailout in its 79-year history. So-called reversed mortgages are at the heart of the problem here, as fallout from the housing crisis continues.

NPR's Dan Bobkoff explains.

DAN BOBKOFF, BYLINE: Perhaps you've seen ads like this one, on TV.

(SOUNDBITE OF TV AD)

FRED THOMPSON: A government-insured reverse mortgage allows seniors to stay in their own home, and turn their equity into tax-free cash...

BOBKOFF: FHA-insured reverse mortgages are heavily promoted as a way to live off the value of a home. The loan is generally repaid when the house is sold, or the borrower dies. But if homeowners stop paying their property taxes or insurance, that's considered a default; and FHA takes over. That's what happened with many reverse mortgages during the financial crisis. The FHA found itself trying to unload homes that had lost a lot of value.

Ed Pinto is with the American Enterprise Institute.

ED PINTO: Well, as soon as FHA takes the house, their expenses go up dramatically. Now, they have to pay for upkeep; they have to pay for sales commissions, etc.

BOBKOFF: The Federal Housing Administration may draw nearly a billion dollars from Treasury to make up for its projected shortfall. FHA Commissioner Carol Galante said in a statement that if not for the reverse mortgages, the agency would actually have a $4 billion surplus at the end of the year.

Julia Gordon, of the Center for American Progress, says that's a welcome change.

JULIA GORDON: I was more surprised by the surplus in the single-family program, which I think is great news.

BOBKOFF: She says the FHA needs congressional approval to overhaul the reverse mortgage system, to make it less risky.

The agency has until Sept. 30th to determine whether it needs to tap the treasury.

Dan Bobkoff, NPR News, New York.

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