FHA going down in flames like Fannie/Freddie (Congress, spokesman, how much)

[KUchief25]

Will need to raid the treasury soon it appears. What was that the swooners were saying about how the housing market has turned? You aint seen nothing yet folks. Don't worry when the dust clears the government will own half the property in the country just like the commies wanted it.

"Though the agency guarantees fewer mortgages than either Fannie or Freddie, it now has more seriously delinquent loans than either of the mortgage-finance giants. Overall, the FHA insured nearly 739,000 loans that were 90 days or more past due or in foreclosure at the end of September, an increase of more than 100,000 loans from a year ago. That represents about 9.6% of its $1.08 trillion in mortgages guaranteed. The FHA's annual audit estimates how much money the agency would need to pay off all claims on projected losses, against how much it has in reserves. Last year, that buffer stood at $1.2 billion, representing around 0.12% of its loan guarantees. Federal law requires the agency to stay above a 2% level, which it breached three years ago.
The decision over whether the FHA will need money from Treasury won't be made until next February, when the White House typically releases its annual budget. Because the FHA has what is known as "permanent and indefinite" budget authority, it wouldn't need to ask Congress for funds; it would automatically receive money from the U.S. Treasury. Even if Congress could block funds, it wouldn't want to, given the agency's importance to the housing market.
A spokesman for the Department of Housing and Urban Development, which oversees the FHA, declined to comment."


FHA Nears Need for Taxpayer Funds - WSJ.com

[msdmoney]

This has been expected for a while, the FHA has come to replace subprime lending in many areas of the country, it was only a matter of time before the lending caught up with them. Hopefully these losses prompt lawmakers to reassess the past mistakes of increasing the FHA loan limits, and prompt them to stop using policy decisions that don't properly assess the risk with these loans. Last time the issue of loan limits came up they let the GSE limits fall but kept the FHA limits high, I think this was because Fannie and Freddie were in the public eye, but the FHA wasn't yet. Now there will be more pressure the next time it comes up.

As a future home buyer I hope this will prompt the government to reduce/eliminate the FHA involvement in the housing market, and let prices fall to affordable levels.

[middle-aged mom]

Prior to the Great Depression, banks used depositors monies to fund mortgages. The most common mortgage term at that time was 50% down with a 5 year maturity. The borrower needed substantial skin in the game and carried the interest rate exposure. Upon maturity, the borrower could pay it off or refinance at prevailing rate.

During the Great Depression, about 50% of all homes were in foreclosure. Those banks that managed to remain open, refused to write new mortgages, presenting a serious economic recovery dilema.

FHA and FNMA and mortgage securitization were a part of the New Deal. The government, not the banks, took on the obligation of insuring ( FHA) or guaranteeing ( FNMA) mortgages/MBS. With the government on the hook, banks began making loans and the maturity terms quickly increased to 20 years. Later, the GI Bill created VA loans whereby returning vetrans could buy homes without any downpayment.

The combination helped put people back to work, goosed construction and all the stuff that goes along with housing. More homes meant property taxes which built parks, pools, playgrounds, schools, libraries and more for the baby boom and economies that followed.

Interestingly, default rates are lower in the large non U.S. markets despite that all have higher price volitility than experienced in the U.S. Reasons include that most other countries do not engage in sub prime lending and there are consequences- mortgages are recourse and deficiency judgments are the norm.

Regardless of how anyone feels about the U.S. government being in the housing business, there is no question that the system worked very well for 70 years.