FHA Going Broke

I expect they'll ask for a massive government bailout. Politicians will keep using the FHA to subsidize homeowners risky decisions to buy more home than they can afford. I expect the FHA will keep guaranteeing mortgages with low down payments. I expect politicians will keep subsidizing the risky behavior that got us into this mess.

With current policies, FHA insures mortgages where buyers have small incentive to stay in their homes if the going gets tough.

The Los Angeles Times reports:

For several years, the Federal Housing Administration has been the go-to financing resource for cash-strapped home buyers who can't come up with a big down payment. It has zoomed from barely a 3% market share to nearly 30% of home purchase loans. But now, FHA-insured mortgages could be on the verge of becoming more expensive and tougher to obtain.

In the wake of an independent actuarial study that found the FHA's insurance fund reserves far below the congressionally mandated minimum, the agency confirms that it is exploring ways to pump up its reserves — including raising insurance premiums, minimum down payments and a variety of other unspecified moves.

How might these changes affect home buyers and refinancers? FHA officials won't discuss precisely what they're looking at. But here's an overview of some of the possibilities:

* Higher down payments. FHA's current minimum cash down payment is 3.5%. On a $200,000 house, a buyer can bring just $7,000 to the table, aside from closing costs.