Federal Housing Administration officials urged a contractor not to publish an analysis showing the government mortgage insurer could face a $115 billion shortfall, according to a letter from a U.S. lawmaker.
The FHA reported in October that losses on defaulted loans could lead it to rely on as much as $16.3 billion in taxpayer aid, the first such subsidy in its 79-year history. White House budget writers reduced the estimate to $943 million in the budget plan they released in April as the housing market improved.
The October report intentionally omitted a projection performed by the FHA’s independent actuary showing the cost could be as high as $115 billion in a catastrophic scenario, Darrell Issa, chairman of the House Committee on Oversight and Government Reform, said in a May 29 letter.
E-mails obtained by the committee “indicate that the fund’s true liability may be as high as $115 billion under severe economic circumstances, and that FHA may have encouraged IFE Group to obfuscate this fact from Congress,” Issa, a California Republican, wrote to FHA Commissioner Carol Galante.
In his letter, Issa quoted e-mails between an FHA official and the independent contractor.
“We just do not want that analysis to be in the actuarial review report for the first time this year,” one e-mail said, referring to the $115 billion projection, according to Issa. “In congressional hearings, it is quite possible that we will be required to present this information on the record, but that will be well after the actuarial review is released and the initial media coverage takes place.”
Issa’s letter was reported earlier by the Wall Street Journal.
Issa asked Galante for more documents pertaining to the preparation of the actuarial report and requested that she and her staff make themselves available for interviews.
“We are looking into this matter and we will respond to the committee appropriately,” Addie Whisenant, a spokeswoman for the Department of Housing and Urban Development, said in an interview.
The FHA is required to keep enough cash on hand to cover all expected future losses. The agency has until Sept. 30, the end of the fiscal year, to make a final determination of whether it will require aid from the Treasury this year.
The FHA’s shortfall stems largely from loans it backed from 2007 to 2009 when it expanded its book of business as private capital evaporated. Those loans alone are projected to cost the agency $70 billion.
The FHA insures $1.1 trillion worth of mortgages and backs about 15 percent of the U.S. loan originations for home purchases, almost quadruple the 4 percent share it covered in 2007. About 9.5 percent of loans insured by the FHA are at least 90 days delinquent.
The budget prediction for the FHA is being followed in Congress, where Democrats and Republicans are working on legislation that would further tighten the agency’s underwriting.
Leaders of the Senate Banking Committee have pledged to work on a bipartisan bill to restructure the FHA. Republicans in the House of Representatives are working on their own measure.