By Dina ElBoghdady
Washington Post Staff Writer
Thursday, November 5, 2009
The Federal Housing Administration abruptly delayed the release of a long-awaited independent audit of the financial soundness of the agency, citing potential problems with the accuracy of some of the study's economic models.
The audit, compiled by Integrated Financial Engineering of Rockville, was scheduled to be released Wednesday, and the agency's top officials planned to brief reporters on its results.
But on Tuesday evening, the agency postponed the event, saying the report had yet to be finalized. In a separate statement Wednesday, FHA Commissioner David H. Stevens said the delay was related to economic scenario tests that the agency requested "above and beyond" what was originally to be included in the audit so that the FHA could "better understand a broader range of risk scenarios."
"Based on these results, we raised questions about the accuracy of IFE's modeling, and IFE therefore advised us that we should not treat the report as final," Stevens said. "IFE is now running additional tests to ensure that the final report is accurate."
FHA's financial health has been a topic of growing concern as the agency's loan volume exploded and its default rate climbed. Congress has been worried about the prospect of a taxpayer bailout. FHA officials have said the agency will not need one. But Reps. Darrell Issa (R-Calif.) and Spencer Bachus (R-Ala.) asked Housing and Urban Development Secretary Shaun Donovan on Monday to provide data backing up that claim.
In September, Stevens said the audit would show that the agency's cash reserves had dropped below federally mandated levels. As of Oct. 1, the reserve fund no longer had enough cash to cover at least 2 percent of the agency's outstanding loans, as required by law, he said.
But while the reserves are at a historic low, the audit predicted that they would rebound to the required level within two to three years largely as a result of the recovery in the housing market, said Stevens, citing preliminary data from the report.
On Wednesday, neither the FHA nor the auditing firm would comment about whether the preliminary data are now in question.
But Barry Dennis, president and chief operating officer of the auditing firm, said his office is working as quickly as possible to produce the final report. "In an environment like we're in today, you need to look at a number of different economic scenarios, and in the process of doing that, we needed to track down some potential issues," Dennis said.