FHA Mortgage Guide

A really good reason to reform the FHA program would be to lower insurance claims to assure that the system is self-supporting.

A new report from the Government Accountability Office (GAO) shows that if FHA reforms are passed then costs to Uncle Sam would decline significantly. As taxpayers we want a program that is self-sustaining instead of one that requires additional tax dollars to operate.

To follow what’s going on, remember that a “positive subsidy” is a bad thing — it means taxpayers are adding money to the FHA program. A “negative subsidy” means that the FHA’s Mutual Mortgage Insurance Fund is taking in more in premiums than it’s spending on claims.

The “FHA has made estimates,” says the GAO, “indicating that the loans it expects to insure in 2008 would result in negative subsidies of $342 million if the major legislative changes were enacted, rather than requiring an appropriation of $143 million absent any program changes.”

However, says the GAO, “these figures do not reflect FHA’s proposals to eliminate the limit on the number of mortgages insured under the HECM program and move the program from the General Insurance Fund to the Mutual Mortgage Insurance Fund. According to FHA’s estimates, the HECM program would generate about $338 million in negative subsidies in fiscal year 2008. Therefore, moving the HECM program would result in negative subsidies totaling about $680 million.”

In effect, FHA reform could significantly enhance the insurance fund which backs FHA promises to lenders. That’s good for borrowers and taxpayers.

However, as noted yesterday, reform would also mean higher insurance fees for many borrowers — and no FHA financing for some who qualify under today’s standards.

Check out these FHA resources for more information

This entry was posted on Friday, July 6th, 2007 at 1:53 am and is filed under FHA. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.