FDIC & FHA are in Deep T-R-O-U-B-L-E
Friday, September 18, 2009SUSIE GHARIB: Two government agencies that are supposed to pay for themselves are at risk of no longer being able to do that. Bank failures are draining the reserve fund at the Federal Deposit Insurance Corporation or FDIC. Mortgage defaults are the main problem for the Federal Housing Administration or FHA. It will soon be below the minimum reserves that Congress requires. As Stephanie Dhue reports, both situations could leave taxpayers on the hook.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: The fallout from the housing bust continues to weigh on the Federal government. FDIC Chairman Sheila Bair says her agency may have to tap a $500 billion line of credit with the Treasury to shore up its deposit insurance fund.
VOICE OF SHEILA BAIR, FDIC CHAIRMAN: We are carefully considering all options.
DHUE: The FDIC has already used some of its options, charging banks an emergency fee and raising bank premiums. Since more banks failures are likely, analyst Karen Petrou says raising fees again could be counterproductive.
KAREN PETROU, FEDERAL FINANCIAL ANALYTICS: Banks are already weak. The more you take money from them to bolster the FDIC, the less they have to support their own capital, let alone make new loans and enhance the recovery.
DHUE: The FHA has similar problems. The agency has a high default rate on loans made during the housing boom and as home prices fall, loans are more risky. But FHA Commissioner David Stevens says his agency will be able to cover the losses.
VOICE OF DAVID STEVENS, FHA COMMISSIONER: Under no circumstance will any taxpayer bailout be needed to support the fund.
DHUE: The FHA will hire a chief risk officer and tighten credit and appraisal standards, but says it won't raise premiums or down payments for borrowers. The agency now guarantees 23 percent of all home loans, up from 2 percent three years ago. And it makes 80 percent of loans to first-time home buyers. Economist Dean Baker says how the agency handles its losses will be key for the housing market.
DEAN BAKER, CENTER FOR ECONOMIC & POLICY RESEARCH: If they begin to be more cautious, perhaps raise the down payment requirement, which is 3.5 percent now or raise their fees, scrutinize loans more carefully, that would make their finances more secure, but the flip side is they'd be less of a buttress for the market.
DHUE: With more foreclosures and bank failures expected, analysts predict the strains on the agencies will get worse before they get better. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
