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FHA Gives Up Billions To U.S. Treasury

FHA Gives Up Billions To U.S. Treasury

Peter G. Miller

Can you name a federal agency that has banked more than $13.5 billion in mortgage insurance profits during the past few years?

If the Federal Housing Administration does not spring to mind you’re not alone, but the fact is that HUD has taken billions in FHA premiums and given it to the U.S. Treasury. Rather than rebate profits back to borrowers — the traditional FHA practice — HUD has turned surplus mortgage insurance premiums into de facto tax payments and used the money to reduce the federal deficit.

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Treasury Windfall
While most of us figure our income according to the calendar year, the federal government determines its income and expenses according to the “fiscal” year, the period between October 1st of one year and September 30th of the next. Right now, for example, the government is operating in fiscal 2008, the accounting year that began last October.

According to official HUD records, in the seven-year period from fiscal 2001 through fiscal 2007 a total of $13.5 billion was turned over to the Treasury from the FHA program. This is money that was not rebated to borrowers and not retained in a reserve to protect against future losses.

Not only did the FHA pay-out $13.5 billion to the Treasury it also gave up the interest which it might have accumulated from such funds.

During the period from 2001 through 2007, the interest rate associated with Treasury bills varied from nearly 6 percent to as little as 1.2 percent according to HSH Associates, a financial publisher.

If the typical rate for Treasury bills was 3.6 percent from 2001 through 2007, then not only did HUD give up $13.5 billion in borrower premiums, it also lost interest. (6 percent less 1.2 percent = 4.8 percent. 4.8 percent divided by 2 = 2.4 percent. 2.4 percent plus 1.2 percent = 3.6 percent)

How much Interest? If you calculate the future value of money for each year, then at 3.6 percent annually the total is another $2.6 billion that could have been earned by investing in T-bills.

In total, HUD turned over the equivalent of $16.1 billion in borrower premiums to the U.S. Treasury ($13.5 billion plus $2.6 billion).

FHA Profits & Interest

Fiscal Year	Loans Originated	Returned To Treasury	Interest Lost
2001	1,062,867	$2,248,000,000	$630,921,685
2002	1,246,561	$2,880,000,000	$680,828,196
2003	1,531,091	$3,583,000,000	$693,077,671
2004	826,611	$2,660,000,000	$404,225,048
2005	523,243	$1,044,000,000	$116,859,781
2006	502,049	$880,000,000	$64,500,480
2007	532,494	$209,000,000	$7,524,000
Total	6,224,916	$13,502,000,000	$2,597,936,861

Sources: HUD, FHA, Mortgage Insurance Companies of America

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