Fears Grow for a Bailout of the FHA
This should sound familiar: Growing losses on Federal Housing Administration-backed mortgage loans are prompting fears the agency will be next in line for
Jul 31, 202063.2K Shares1.6M Views
This should sound familiar: Growing losses on Federal Housing Administration-backed mortgage loans are prompting fears the agency will be next in line for taxpayer help, The Wall Street Journal says.
“„The Federal Housing Administration, hit by increasing mortgage-related losses, is in danger of seeing its reserves fall below the level demanded by Congress, according to government officials, in a development that could raise concerns about whether the agency needs a taxpayer bailout.
“„In the past two years, the number of loans insured by the FHA has soared and its market share reached 23% in the second quarter, up from 2.7% in 2006, according to Inside Mortgage Finance. FHA-backed loans outstanding totaled $429 billion in fiscal 2008, a number projected to hit $627 billion this year.
“„Rising defaults have eaten through the FHA’s cushion. Some 7.8% of FHA loans at the end of the second quarter were 90 days late or more, or in foreclosure, according to the Mortgage Bankers Association, a figure roughly equal to the national average for all loans. That is up from 5.4% a year ago.
TWI wrotein January about concerns regarding the FHA and its dwindling insurance portfolio. As we noted then, Washington housing consultant Howard Glaser pointed out that with its larger share of the housing market, the FHA was becoming a $2 trillion company without a risk control officer. If that doesn’t make you nervous, it should.
But the bigger issue for the FHA — and for some other government agencies — is the legacy left by the previous two administrations. Beginning, in fact, with former Vice President Al Gore’s Reinventing Government initiativebut expanding with a vengeance and an anti-government fervor during the Bush years, the idea of downsizing government reigned supreme. The FHA, like its parent agency, the Department of Housing and Urban Development, was shunted aside, stripped of many of its powers and personnel, left to languish and demoralized. Now a smaller and weakened FHA is supposed to turn on a dime and save the mortgage market. Little wonder the agency is running into problems.
Here’s how Sheila Crowley,president of the National Low Income Housing Coalition, summed things up in January for TWI:
“„“When you’ve been operating under a belief system that government is the problem and is not helpful, which has been the direction under the Bush Administration, people get demoralized and that makes it harder to get anything done,” she said. “HUD and the FHA have lost a lot of people and they’ve been neglected over the past eight years. There just aren’t enough people left to do everything the government is asking them to do. It’s a pretty hefty assignment to turn them around.”
The FHA has never had to ask for government help since it began in 1934. That may change, if loan defaults keep growing and the insurance fund shrinks even more. If there’s yet another taxpayer bailout, the government won’t need to look far to find someone to blame.
Hajra Shannon
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Hajra Shannona is a highly experienced journalist with over 9 years of expertise in news writing, investigative reporting, and political analysis.
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