Shaun Donovan, secretary of HUD, said that the major banks involved in the settlement agreed to provide up to $1 billion to shore up the capital reserve fund of the FHA. The FHA provides mortgage insurance on loans made by approved lenders across the country.
It is estimated that the FHA’s capital reserves could drop this year, leaving an almost $700 million shortfall and it could potentially force the self-funded agency to seek aid from the Treasury for the first time since its inception in 1934.
Even though the government is legally required to ensure that the FHA’s emergency reserve fund does not drop below 2 percent of outstanding FHA loans, the agency’s reserves have fallen below that mark in recent years due to the housing crisis. The law states that if the FHA’s reserves were depleted entirely, the FHA would automatically receive payments from the Treasury to make up for the deficit. Up to now, the agency has never needed help from the Treasury.
In addition to the settlement payments from banks, the secretary of the HUD said the FHA would increase its mortgage insurance premiums again this year, according to Brady Dennis from the Washington Post.
In addition to the settlement payments from banks, the secretary of the HUD said the FHA would increase its mortgage insurance premiums again this year, according to Brady Dennis from the Washington Post.
For more on the multi-state mortgage settlement read my other recents posts:
