The mortgage settlement plan with the country's largest banks by the Obama administration will be of great help to the Federal Housing Administration (FHA). As a part of the $25 billion mortgage settlement, FHA will receive about $1 billion. This will help the FHA to avoid tapping a U.S. Treasury credit line. It will be of great help to FHA because the cash reserves if FHA has reached a low of $2.6 billion in 2011. This new development was announced by the U.S. Secretary of Housing and Urban Development, Shaun Donovan.
Apart from that, Shaun Donovan has also said the FHA would be able to raise premiums on the insured loans in order to strengthen its reserves. This shows that the government is taking actions in order to protect its funds and is also trying to ensure that the housing market gets ample support to recover. It is expected that the FHA will officially announce the higher mortgage insurance premiums in the next few days.
It should be noted here that the FHA has never needed funds from the Treasury because it was able to take other actions such as hiking premiums in order to remain solvent. Now that they were facing crisis, Obama, last month, proposed spending up to $10 billion to help Americans refinance their FHA-backed loans. Though the plan apparently sounds good but some Republicans worry the plan, could weigh down the agency with further losses. However, the proposed plan needs congressional approval.