EDITOR’S NOTE: FHA Watch

Will the Federal Housing Administration (FHA) be next to need the government to keep it afloat?

“FHA will not need to ask Congress and the American taxpayer for extraordinary assistance—we will not need a bailout,” FHA Commisioner David H. Stevens assured the House subcommittee at a testimony last Thursday.

One is tempted to say, “we have heard that before” from at least one other financial institution that later did need help, but the reassuring words are nice as FHA-insured loans are financing virtually most of any new multifamily construction that is going on anywhere in the U.S.

This year through Aug. 10, 57 loans (representing $874 million and 9,946 units) have been insured under FHA’s multifamily Section 221(d)(4) program.

FHA has said that its capital reserve ratio would likely fall below 2 percent level, and The New York Times reported that Commissioner Stevens said as much as 20 percent of FHA loans insured last year are problem loans.

Note, however, that the Commissioner’s testimony and the numbers relate to the FHA’s singlefamily portfolio. Its multifamily portfolio is another matter, and numbers are forthcoming from the Department of Housing and Urban Development (HUD). But generally, it is believed that the health of FHA’s multifamily loans are much better.

Hugh Jeffers, vice president of originations with Evanston Financial Co., is not too concerned. “Generally speaking, the multifamily portfolio, while there may be some defaults, is generally strong. The health of its portfolio is still good on the multifamily side.”

Jeffers noted that HUD is being “very careful” on new construction projects and the delivery of new projects. Also, “existing rental projects are performing very well still,” he noted.

All the same, the health of the overall FHA portfolio will have an effect on the availability of FHA’s multifamily financing in so far as it has an impact on the future of FHA. Jeffers believes the government will not allow the multifamily program to end, whatever actions are taken. “Will the programs go away? I do not believe they will,” he says. We have to continue to keep track of the developments.