Loan Losses Spark Concern Over FHA

WSJ ^ | 9/4/09

[FromLori]

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.

The rising losses at the FHA, part of the U.S. Department of Housing and Urban Development, come as the agency has rapidly increased its role in guaranteeing loans in an attempt to stabilize the housing market.

It isn't clear how the rising losses may affect home buyers. Options for the agency could include politically unpalatable choices, such as asking for taxpayer funds to boost reserves or increasing the premiums borrowers pay for the insurance offered by the agency. Agency officials say if there is a shortfall, they don't have to do anything except report it to lawmakers. But some mortgage and housing analysts see trouble ahead. "They're probably going to need a bailout at some point because they're making loans in a riskier environment," says Edward Pinto, a mortgage-industry consultant and former chief credit officer at Fannie Mae. "...I've never seen an entity successfully outrun a situation like this."

The FHA insures private lenders against defaults on certain home mortgages, an inducement to make such loans. Insurance from the New Deal-era agency has enabled lending to buyers who can't make a big down payment or who want to refinance but have little equity. Most private lenders have sharply curtailed credit to those borrowers.

[FastCoyote]

Yeah, they’re reinflating the bubble through FHA loans. How’d that work out the last time the puppeteers tried that?

[FromLori]

http://wallstreetpit.com/10050-uncle-sam-creating-another-housing-bubble Yes indeed!

[freeangel]

This is SO sad because FHA had in previous times been able to really help first time homebuyers. (Of course there were rules in place then and those loans were only made to people who weren’t looking for a free lunch.)

[steveab]

What’s that song?
Here we go again......