Results of the FHA Audit

Well the results of the FHA audit are in and they’re NOT good.

A while back I wrote a blog regarding the dire matter at hand explaining how FHA works and what to expect in the near future.

Well, after the audit, FHA’s current Capital Reserve came back at 0.53% when in fact they are SUPPOSED to be at 2% as mandated by Congress. This money (kind of like an emergency fund if you will) is used to cover “anticipated losses” for the near future.

The Federal House of Administration also holds what is called a Financing Account. Now THIS is used to cover “Actual Losses”.

At the moment, both of these accounts hold about $31 billion, or about 4.5% of the Congressionally mandated 2%.

So what does all this jargon mean and is it good or bad?

Well, both.

Its bad because if Congress MANDATES you to hold a minimum amount in your “savings account”, and you don’t, it is jeopardizing the integrity of the actual program itself. What makes you think that you don’t have to follow the order from above and what kind of image does this portray to the general public? If a government agency isn’t following the rules, why should YOU?

The rule is put into place for a reason. A Senator didn’t just finish his brisk run in the park, go to his morning “secret handshake tutorial”, then walk into HUD and say, “Ya, Peter, let’s go ahead and make the reserve requirement 2% today. I’m feeling FRIS-KAY!”

There’s a REASON the Mafia fell apart folks- because they didn’t follow the rules!

What’s next? TPS reports?

On the other hand (and it’s not that big of a hand), between FHA’s Reserve AND Financing Account, they do have enough money to meet the 2% requirement. I guess somehow this is OK and puts everyone’s mind to rest.

Now, what happens when THAT fund diminishes? Is another “Account” going to pop-up when “FHA hits the fan” to smooth over Congress’s approval?

Yes, its good that they HAVE money, but I don’t believe it should be used as an excuse. It’s exactly like maxing out a credit card. “Oh Bruce, don’t worry, we have ANOTHER ONE!”

Tommy’s 2 Cents:

The point of all this to demonstrate that measures need to be taken NOW to ensure that FHA’s Reserve requirement is met. I understand that this account is for “anticipated losses” and there is money somewhere for actual losses, however the rule needs to be followed or else we are all putting in danger a program that has saved EVERYONE’S butts, as it was originally intended to do so. I certainly do not want to be part of the crowd that overlooked this and said, “Oh, it’ll be fine. They have money.” We have overlooked A LOT of things in the past 5 years, and I for one do not want to see another bust.

November 13, 2009