FHA Accused of Covering up Bigger Potential Losses

Representative Darrell Issa (R-CA) is said to have accused the Federal Housing Administration (FHA) of attempting to bury a $115 bln shortfall in its mortgage insurance fund (MIF). Bloomberg and The Wall Street Journal are reporting that Issa sent a letter on May 29 to FHA Commissioner Carol Galante seeking documents relating to a October actuarial report by IFE Group, an independent contractor and requesting that FHA employees be prepared to appear before his House Committee on Oversight and Government Report.

FHA reported in October that losses on defaulted loans could result in a $16.3 billion deficit in its MIF and that it might need to request a draw on its line of credit with the U.S. Treasury, the first such subsidy in its 79 year history. Issa alleges that emails obtained by his 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."

In his letter, which his office has not yet made publicly available, 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 reportedly said, referring to the $115 billion projection. "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."

(Read More: Not the First Time Congress Has Made Such a Request)

"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 with Bloomberg.

In an appearance before the House Financial Services Committee last February Galante testified that the actuary projected that the MMI Fund capital reserve ratio will be positive the FY 2014 and reach its Congressionally mandated level of 2.0 percent by FY 2017. Galante said changes announced by FHA since the report was issued in October are expected to accelerate the time of the Fund's recovery.

President Obama's 2013 budget reduced its estimate of the funds that might be needed to $943 million in the budget plan it released in April. At a press conference the day of the budget release, Housing and Urban Development Secretary Shawn Donovan said that the reduction in the budget request resulted from concentrated efforts to increase recoveries from loans made in 2007 and earlier and through ramped up loan modifications and increased loan sales as well as changes in the reverse mortgage guidelines and substantially increased premiums for both FHA and Ginnie Mae loans.

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 and Galante has said the ultimate need will be borne out in the actual performance of the FHA single family program and other steps FHA takes to increase revenue or reduce losses.