Taxpayers Could Face (Previously Undisclosed) $115 Billion Losses From FHA

In yet another hit for both the administration's trustworthiness and the hope of some spin-off of the GSEs, the WSJ reports that the Federal Housing Administration's projected losses over 30 years could reach as high as $115 billion under a previously undisclosed stress test. The results, which were not included in the agency's independent actuarial review (because of the potential uproar it might create according to emails), are based on the Fed's stress-test scenario - which seems like something that should (perhaps) have been included. The fact that this data was omitted from the report is "troubling" to House Oversight Committee head Darrell Issa. In its annual audit, the agency disclosed that under current conditions, total losses would exceed its reserves by $13.5 billion over 30 years (with a $943 million loss this year alone). The projected shortfall under a 'protracted economic slump' is $64.5 billion but the 'tail risk' event, that was originally included in earlier drafts, based on the Fed's stress test, is $115 billion. Hardly the upside-encouraging potential that private-finance will be looking for in funding FEDMAGIC.

 

 

Via The WSJ,

The Federal Housing Administration's projected losses over 30 years could reach as high as $115 billion under a previously undisclosed stress test conducted last year to determine how the government mortgage-insurance agency would fare under an extremely severe economic scenario, according to documents reviewed by a congressional committee.

 

The forecast was significantly worse than the most severe estimate included in the agency's independent actuarial review that was released last November.

 

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In a letter sent last week, Mr. Issa asked Carol Galante, the FHA's commissioner, why the agency hadn't disclosed the figure, which he called "troubling."

 

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In its annual audit, the agency disclosed that under current conditions, its projected total losses would exceed its reserves by $13.5 billion over 30 years.

 

A more recent analysis, released in April by the White House's budget office, showed that the agency would require $943 million this year due to losses in the agency's reverse-mortgage program

 

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Emails reviewed by the House committee suggest that the FHA didn't want the bleaker forecast included due to the potential uproar it would create.

 

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Last fall's annual report included several stress scenarios, but none of them showed losses as large as those contemplated by the Fed's stress-test methodology. Its most severe estimate of losses under a "protracted" economic "slump" would have resulted in a projected shortfall of $65.4 billion.

 

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Emails from FHA officials to IFE analysts in April 2012 initially floated the idea of using a stress-test scenario like the one conducted by the Fed in order to measure the costs of big unforeseen shocks, known as "tail risk." ...