Quick, somebody write an FHA bailout into the debt ceiling compromise!
Its another 5 months before the next Christmas Eve when we can announce the bailout on its own!
FHA May Be Next in Line for Huge Bailout: Delisle and Papagianis By Jason Delisle and Christopher Papagianis
Jul 25, 2011 6:00 PM MT Tue Jul 26 00:00:57 GMT 2011
The nationwide decline in house prices has created a vacuum in the U.S. mortgage market. Private financing for home loans has all but dried up and the U.S. government is now guaranteeing almost every new mortgage. Fannie Mae and Freddie Mac have received most of the media’s attention, but policy makers need to focus on the third leg of the housing- support stool: the Federal Housing Administration.
The FHA has some major accounting problems. Left unaddressed, they could spook the markets, lead the FHA to seek a federal cash infusion and further enrage taxpayers. These outcomes can be avoided — but only if policy makers are more transparent about the risks involved in guaranteeing mortgages.
The FHA provides private lenders with a 100 percent guarantee against defaults on home mortgages that meet certain underwriting criteria, such as a minimum down payment and credit score. Traditionally, the FHA has served first-time homebuyers and low- to moderate-income families who pay an insurance premium for this loan guarantee.
As private-financing options have disappeared, the role of the FHA has grown. Its market share has increased to about 30 percent today from 3-4 percent in 2007. That’s because the agency is now practically the only game in town, accepting borrowers with down payments of as low as 3.5 percent. As the last few years have made clear, sizable down payments — or “skin in the game” — are the key to avoiding defaults in the near term and to achieving a stable housing market in the long term.