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FHA Facing Rising Insurance Claims

The Federal Housing Administration (FHA) is bracing for a large spike in insurance claim payments now that servicers have adjusted to the requirements of the $25 billion robo-signing settlement with the nation’s attorneys general.

“We are beginning to see a breaking of the foreclosure backlog that has been affecting the entire mortgage industry since the start of fiscal year 2011,” the agency says in a new report on the condition of the FHA mortgage insurance fund.

FHA paid a record number of foreclosure claims in the third quarter of full-year 2012, which ended June 30. “Post-settlement claims started to come to FHA In February,” the 3Q12 report says.

Claims on defaulted FHA single-family loans have been steadily rising over the past four quarters.

The FHA insurance fund paid $5.3 billion in claims in the third quarter of FY 2012, up from $3.8 billion during the same quarter in FY 2011.

However, FHA’s total capital reserves have declined by only $100 million to $31.6 billion over those four quarters, partially due to increasing revenue from mortgage insurance premiums.

However, the government insurer’s cash flow has turned decidedly negative. The MIF had a net operations cash flow of negative $1.7 billion in 3Q compared to a negative cash flow of $42 million a year ago.

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