December 7, 2012 in Business

GOP senators lean on official over FHA losses

Associated Press
 

WASHINGTON – Republican senators are pressing the U.S. government’s housing official to take steps to shore up the federal agency that insures mortgages for millions of borrowers. An audit shows the agency faces $16.3 billion in losses and might require a taxpayer bailout.

Shaun Donovan, secretary of housing and urban development, said Thursday at a hearing of the Senate Banking Committee that the agency, the Federal Housing Administration, has already taken action to strengthen its finances.

Republican senators said more must be done, such as ending the FHA’s backing of reverse mortgages. They said the FHA has sustained big losses from defaults on those loans, which allow homeowners age 62 or older to borrow against their home’s equity. They also urged reducing the maximum amounts of mortgages that can be insured by the FHA.

The independent audit showed that the FHA’s estimated losses were steeper than earlier projections. High numbers of mortgage defaults triggered by the housing crisis have reduced the agency’s reserve funds, it showed. Mortgages insured by the FHA that were issued in 2007 and 2008 caused a major part of the losses, Donovan said.

There is “clear potential now for a taxpayer bailout,” said Sen. David Vitter, R-La.

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