FHA loan program at risk as demand soars, watchdog says

Record-high demand for government-backed home loans is overtaxing the Federal Housing Administration and may weaken the integrity of Ginnie Mae mortgage bonds, a U.S. inspector general said. ‘FHA will be challenged to handle its expanded workload or new programs that require the agency to take on riskier loans than it historically has had in its portfolio,’ Kenneth Donohue, the inspector general for the Housing and Urban Development Department, told lawmakers today. ‘The surge in FHA loans is likely to overtax the oversight resources of FHA, making careful and comprehensive lender monitoring difficult.’ The freeze in the mortgage markets has driven FHA’s market share to 63% this year, from 24% in the fiscal year ended Sept. 30, Donohue told a House Financial Services Committee panel on Oversight and Investigations. FHA has historically been most vulnerable to fraud and exploitation when loan volume is high, Donohue said. He said that Ginnie Mae, the government agency that insures mortgage bonds backed by FHA loans, is also at risk.

Donohue said the rise of mortgage fraud among FHA lenders has depleted FHA’s mortgage insurance fund, which has fallen to $12.9 billion, or 2% of all insured assets as of Sept. 30, from $21 billion, or 6.4% of assets a year earlier. Under some economic projections, that ratio could fall below the statutory requirement of 2%, requiring taxpayer assistance or an increase in premiums, he said.