Risk management expert Clifford Rossi looks at two recently released documents on the FHA, which he says together "bear ominous warnings about a portfolio in excess of $1 trillion."
The first is HUD's annual audit, which showed the capital reserve ratio for FHA at 0.24%, well below the congressionally mandated level of 2%. Though HUD forecasts the ratio will remain positive and return to where it's supposed to be by 2014, Rossi thinks that outlook is rather rosy as it assumes improvement in home prices. "That of course is a big if in all of this analysis."
The second is a report from the GAO on FHA's risk management: "Despite the commitment and early efforts to build risk management capabilities, the GAO has called out a number of concerns related to deficiencies in information technology, risk assessment strategy and human capital that leave considerable doubt as to how the FHA is in a position to actively identify, measure and manage its risks," Rossi says. "Building a foundation for strong risk management at FHA would be money well spent."
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