About 25% Of FHA Loans From Past 2yrs In Trouble

Here’s some scary testimony to Congress, that 20 percent of F.H.A. loans insured last year — and as many as 24 percent of those from 2007 — faced serious problems, including foreclosure, offering a preview of a forthcoming audit of the agency’s finances.

Why is the FHA in this trouble? Because it insures loans with low down payments. Why? Because it is politically popular, but it is horrible economics. Why subsidize people with little investment in their homes? It is easy for them to walk away. Foreclosure is not such a big deal if you have not sunk tens of thousands of dollars into your home.

The FHA insures people who tend to have a lower-income than most homeowners.

I predict a massive bailout within the next three years.

No matter how many trillions the federal government throws at the housing market, the best it can do is achieve stabilization. Meanwhile, lending is declining and there’s no relief in sight.

The NYT reports: The issue of F.H.A.’s financial health took on new urgency as skeptical lawmakers and critics focus on its reserve levels. In prepared remarks, a former Fannie Mae executive predicted that losses might soon overwhelm the F.H.A, prompting a government bailout.

Since the bottom fell out of the subprime mortgage market, the F.H.A. has filled the void left by banks and assumed a growing role in the nation’s housing market. Created in 1934 to help lower-income and first-time buyers buy homes, the agency now insures roughly 5.3 million mortgages, with a combined value of $652 billion, on single-family homes.

To critics, among them Republican lawmakers, the agency’s rapid growth recalls the ill-fated expansion of Fannie Mae and Freddie Mac during the housing boom. They worry that the F.H.A., like Fannie Mae and Freddie Mac, might need to be rescued by the government.

About Luke Ford

Raised a Seventh-Day Adventist at Avondale College in Australia, Luke Ford moved to California in 1977. He graduated from Placer High School in 1984, reported the news at KAHI/KHYL radio for three years, attended Sierra College and UCLA, was largely bedridden by Chronic Fatigue Syndrome for six years, and converted to Judaism in 1993. From 1997-2007, Luke made his living from blogging. Living by Beverly Hills (Alexander90210.com), he now teaches the Alexander Technique (moving the way the body likes to move). Lessons cost $100 each and last about 45 minutes. In 2011, Luke completed a three-year teaching course at the Alexander Training Institute of Los Angeles. His personal Alexander Technique website is Alexander90210.com. Luke is the author of five books, including: » The Producers: Profiles in Frustration » Yesterday’s News Tomorrow: Inside American Jewish Journalism
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