GAO reports on 2003 FHA reestimate

The Government Accountability Office reports today on explanations for the unusually large $7 billion credit subsidy reestimate issued by the FHA in 2003. They found the FHA had to pay more claims and absorb the effects of more prepayments than expected, thereby raising the cost of its operations for the year. The report says

FHA has taken some steps to tighten underwriting guidelines and better estimate loan performance, though it is not clear that these steps are sufficient to reverse recent increases in actual and estimated claims and prepayments or help FHA to more reliably predict future claim and prepayment activity. Increases in claim and prepayment activity are likely to continue to add risk to FHA's portfolio.

Full report here, highlights over here.