U.S. Is Losing Billions on Foreclosed Mortgages

WASHINGTON —  The taxpayers’ bill for foreclosures on federally backed mortgages for middle-class housing has passed the $2-billion mark and is showing few signs of leveling off as once-profitable government housing insurance funds are hit with the full impact of the losses, according to government and housing industry officials.

Housing insurance programs run by the departments of Housing and Urban Development and Veterans Affairs have helped millions of Americans buy homes and build or rehabilitate multi-family housing during the last half century.

In many cases these programs paid their own way from the fees they collected and had enough left over to contribute to the federal Treasury.

Those days are over for the biggest of the programs, which are now a drain on the Treasury. The economic slump in the South, Southwest and parts of the West is a major contributor, but mismanagement and fraud also have played a part.

Housing program staffs, cut back sharply by the Reagan-era effort to contract programs out to private companies, were unable to monitor many programs adequately while the cost of favors for high-ranking Republicans compounded the problems.

The Government National Mortgage Assn., a mortgage-financing agency known as Ginnie Mae, is the latest to suffer. The agency’s losses could eventually hit $1 billion, and Ginnie Mae is blaming much of its problem on the Department of Veterans Affairs’ loan guaranty policies. Unless action is taken to curb the expected VA losses, Ginnie Mae could be recording losses of $50 million to $100 million annually starting as early as next year, according to a high-ranking Ginnie Mae official who requested anonymity.

The Federal Housing Administration, which provides government insurance on home buyers’ loans, is also reporting losses after 55 years of profitability. The FHA lost $452 million in 1987 and continued to lose $40 million a month on its single-family home insurance program during the six months ended March 31, according to the Heritage Foundation.

The VA is being hit even harder. Congress has appropriated $1.7 billion since 1984 to keep the department’s loan fund afloat and will have to continue covering losses, officials said.

Ginnie Mae plays a pivotal role in the U.S. real estate market by raising money for loans to home buyers and developers of rental apartments.

With the help of Ginnie Mae, lenders bundle together FHA- and VA-insured mortgages and issue bonds backed, or “secured,” by the mortgages and the monthly payments they are supposed to produce. Paying the investors each month is the responsibility of the lenders. When a homeowner defaults, the VA and FHA are responsible for insuring the mortgage principal. But Ginnie Mae must keep up with the monthly interest payments, at least until the property is sold.