FHA Drops a $1.7 Billion Bail Out Bombshell on Friday Night

The FHA is getting a $1.7 billion bail out from the Treasury.  Seems those reverse mortgages have managed to accrue $5 billion in losses.  The news was disclosed in a letter to Congress, not even a press release.  Most of us know the drill.  Have to issue news but want no one to read it?  Release it at 5pm on a Friday.  Such is the latest trick of the FHA.Federal Housing Administration Commissioner via a letter to Congress, who doesn't need to approve the bail out.  The FHA insures loans and is now tightening the rules on reverse mortgages to start this Tuesday.  The $1.7 billion bail out is about 10% of FHA's revenues.

Those changes, detailed in a letter from the Federal Housing Administration, include a 15 percent reduction in the maximum amount a borrower can access via a reverse mortgage.

The FHA will also begin collecting 2.5 percent of the home's value in an upfront mortgage-insurance premium rather than the 2 percent it has charged for those taking out 60 percent or more of their proceeds in the first year of a loan.

And starting Jan. 13, borrowers will have to pass a financial assessment to measure whether they can handle insurance and property-tax payments. If not, funds will be set aside to cover those costs and prevent a default.

Even though the $1.7 billion bail out is projected to be a one time event, House Republicans are already on the prowl to shut down the FHA as a result.

The House Financial Services Committee passed a Republican bill in July that would largely limit FHA coverage to first-time borrowers purchasing moderately priced homes. The Senate Banking Committee in July approved a bipartisan measure that would set a floor on premiums the agency charges and require it to hold more money in reserve.

There are many older people surviving due to these mortgages and without reverse mortgages won't be able to pay their bills.  Surprise, people in retirement are taking on more and more debt.