Would FHA Bailout Trigger More Premium Hikes for Senior Housing?

The Federal Housing Administration might be needing a financial lifeline from the Treasury, according to Bloomberg, but lenders in the senior housing and care space aren’t expecting another hike in loan insurance premiums for FHA-insured programs. 

Continued losses stemming from the housing market collapse are hitting the FHA hard. Ahead of a financial analysis expected to be issued next week, some people with knowledge of the report say it could be setting the stage for the first draw from the Treasury in the federally-backed mortgage insurer’s nearly eight-decade history.

In recent months, FHA has raised premiums on many of its loan programs, including those related to senior housing, and has also tightened its credit standards in attempts to shore up reserves and avoid a taxpayer bailout. Considering the by-and-large positive performances of the multifamily and healthcare loan portfolio, another mortgage insurance premium hike could be a possible way to use profitable loan programs to help subsidize ones that are in the red. 

However, that’s not likely to occur, says Nick Gesue, senior vice president and chief credit officer at Lancaster Pollard. That’s because the Department of Housing and Urban Development (HUD) is “fairly compartmentalized” between its single family and multifamily portfolios, and profitability that comes from one side isn’t generally used to fund shortfalls on the other.

The agency’s problems stem from the single family portfolio and are concentrated in loans originated during the years before the 2008 housing market crash, so the possibility of a Treasury bailout for the FHA isn’t necessarily cause for concern among those involved in senior housing finance, says Michael Vaughn, senior vice president of Walker and Dunlop’s FHA Finance Division. 

Despite the profitability of the multifamily (and healthcare) loan portfolios, HUD already raised mortgage insurance premiums on these loans, effective Oct. 1, 2012, he points out. “It would be unusual for them to be raised twice in the course of a year, especially because the increase was due to overall budgetary concerns, not the performance of the programs.”

Cambridge Realty Capital Companies’ president and chairman Jeff Davis also pointed out that the FHA’s financial woes are related to its single family portfolio.

“I’m not expecting another increased MIP for some time for multifamily or healthcare,” he says.

While it’s possible that FHA will propose another premium increase for next year, Vaughn says, “at some point the elasticity of demand for the programs will be tested and an increase would actually have counterproductive budgetary effects.”

Written by Alyssa Gerace