Billions in Losses Expected in HUD-Insured Mortgages

The U.S. Department of Housing and Urban Development reportedly expects to lose up to $11.9 billion in defaults on government-insured mortgages, more than double its earlier estimates of the bad loans.

The troubled loans represent more than a quarter of the $43 billion in mortgages insured by the department under programs to encourage the construction of apartment buildings, the New York Times reported in today’s editions. Most of the losses would be borne by taxpayers.

The expected losses were detailed in a confidential report issued in April by the accounting firm of Coopers & Lybrand and obtained by the newspaper. The study was commissioned by then-Housing Secretary Jack Kemp during the George Bush Administration.

Housing officials have known for years that they faced significant losses in the insurance program, but the study revealed the amount of bad loans was more than double earlier estimates.

HUD Secretary Henry G. Cisneros said that the forecast is “the single largest problem I have inherited.” Cisneros said he has been working daily with the White House to draft legislation that would give the department greater flexibility in managing and selling distressed property.