Losses on government-insured mortgages for homes in areas affected by Hurricane Katrina are expected to amount to hundreds of millions of dollars over the next two years.
The Federal Housing Administration insured an estimated $359 billion in mortgages for the year ended Sept. 30, with roughly $3 billion of the amount applying to loans associated with 11 counties in Gulf Coast states that remained "seriously flooded" as of Sept. 7, according to a fiscal year 2005 actuarial review of the FHA by independent auditors.
While total damage and a recovery plan is still unclear at the time, it is assumed that "one quarter of the housing underlying these mortgage loans would receive compensation neither from natural hazard insurance policies nor from FEMA recovery subsidy and would never be rebuilt," according to the report.
Assuming a 100% of loss severity rate on these loans, the government agency estimates FHA losses from Hurricane Katrina could reach $770 million over fiscal years 2006 and 2007, the auditors said.
Due to the uncertainty of the outcome, the anticipated losses were excluded in estimating that the FHAs capital rate climbed to 6.02 percent from the previous fiscal year's 5.53 percent.