$16 billion shortfall: FHA paying the price for helping

HUD became the go-to agency for lenders during the mortgage meltdown and it now appears the agency is paying the price.

The Federal Housing Administration, part of the U.S. Department of Housing and Urban Development, is facing a $16.3 billion shortfall and is taking steps to mitigate losses, according to a new independent audit.

The agency says home prices have not risen as quickly as they forecasted, and low interest rates have caused less return as well. A high number of mortgage delinquencies from the real estate bubble has also caused the agency to come up short.

“We will continue to take aggressive steps to protect FHA’s financial health while ensuring that the FHA continues to perform its historic role of providing access to home ownership for underserved communities and supporting the housing market during tough economic times,” says Carol J. Galante, FHA’s acting commissioner.

The FHA says it has seen improvement lately with its portfolio. But a large number of loans insured between 2007 and 2009 that became delinquent have caused an estimated $70 billion in losses alone, proving to be “significant” strain on FHA’s finances.

Since the mortgage meltdown and the resulting stringent lending guidelines, more borrowers have taken the less onerous road offered by FHA requirements.

The problem is that road has become jam-packed with people who were never supposed to be on it. FHA was founded to make loans to a select number of people and it has gone to funding three percent of all mortgages in 2006 to more than 40 percent today.