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For the fifth time, the Federal Housing Administration increased its annual mortgage insurance premium for most new mortgages by 10 basis points.
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FHA Moves Reduce Chances
of Need for Treasury Bailout
Federal Housing Administration Commissioner Carol Galante testified before the House Financial Services Committee, asserting that the federal agency can avoid an immediate Treasury bailout.

Congressional members grilled Galante Wednesday on the potential risk to taxpayers after a November actuarial report on the financial health of the FHA showed the value of the agency's Mutual Mortgage Insurance Fund stands at negative $16.3 billion.

In addition, the capital reserve ratio of the fund fell below zero to negative 1.44%, according to the recent report.

Galante stated that while the projected report is of very serious concern, it is not the determining factor as to whether FHA will need to draw on permanent budget authority from the US Department of Treasury.

"Any determination that such a draw is necessary will not be made until the end of FY 2013, and in any event, does not affect the full faith and credit of the Federal Government to pay any claims," Galante said.

She added, "The ultimate need will be borne out in the actual performance of the FHA single-family program over the course of the fiscal year, and will be impacted by the steps FHA takes over the course of the year to increase revenue or reduce losses."

For instance, President Obama's fiscal year 2012 budget submission, anticipated that FHA would need to draw close to $700 million in assistance from the Treasury to cover expected claims. Instead, at the end of 2012, the Capital Reserve Account held $3.3 billion, which was due to policy changes that improved the value of the Fund, Galante said.

As a result, Galante said new policies changes enacted this year are expected to reduce the need to draw on Treasury assistance.

The commissioner stated that the FHA has taken actions to protect and strengthen the MMI Fund's value by adding $31 billion.

Additionally, for the fifth time, FHA increased its annual mortgage insurance premium for most new mortgages by 10 basis points.


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