The Federal Housing Administration said on Friday that it needs approximately $1.7 billion from the U.S. Treasury to cover projected losses related to reverse mortgage programs that allow seniors to borrow against their homes for everyday expenses.
In a letter to Congress, FHA Commissioner Carole Galante said the agency will withdraw the funds from the Treasury before the end of the fiscal year—the first bailout in the agency’s 79-year history, USA Today reports.
Reverse mortgage borrowers, who must be 62 or older, can receive lump-sum or monthly payments, though they are still required to pay insurance and property taxes. After the borrower dies or moves out of the house, sale proceeds from the home go to the lender.
The FHA suffered massive losses after many borrowers took large lump-sum payments and encountered financial trouble, often the result of falling home values in the midst of the financial crisis, according to USA Today.
The required bailout is approximately twice as much as the Obama administration predicted the agency needed in April – $942 million. Galante said the agency needs more money because interest rates have discouraged borrowers and limited the FHA’s loan volume.
The announcement, however, drew criticism from House Financial Services Committee Chairman Jeb Hensarling, who said American taxpayers “are sick and tired of having to bail out Washington’s failed housing policies.”
Hensarling, as well as Rep. Randy Neugebauer (R-Texas), another member of the HFSC, called on Congress to enact the Protecting American Taxpayers and Homeowners Act, legislation designed to shift risk from taxpayers to the private sector and to reduce the government’s role in the housing finance market.
“The PATH Act not only ends the bailout of Fannie and Freddie, it includes reforms that will help ensure the FHA is solvent,” Hensarling said. “Over the years, the FHA has strayed far from its original mission. It has become the nation’s largest subprime lender. It’s time to return the FHA to its traditional mission of helping first-time homebuyers and those with low and moderate incomes, and that’s exactly what the PATH Act does.”