A day after Uncle Sam sues S & P for fraud in rating collateral debt obligations too high, Representative Jeb Hensarling served up that tasty sound bite, followed by, “Arguably the FHA has now become the largest subprime lender all with the blessings of the administration.”
A creation of FDR’s New Deal, the FHA insures loans with tiny down payments, high loan to values, and low credit scores. “Because of that insurance, lenders can — and do — offer FHA loans at attractive interest rates and with less stringent and more flexible qualification requirements.”
The FHA now insures over a trillion dollars in loans. Since the housing crash, the FHA has taken a licking and is about to go on the government dole. Bloomberg reports,
President Barack Obama’s 2013-2014 budget is expected to reflect that FHA will require a Treasury subsidy for the first time since it was founded in the 1930s, largely due to defaults on loans it insured as the housing market crashed. The FHA could fall as much as $16.3 billion short of the cash it is required to keep on hand to cover all projected future losses, according to an independent actuary.
Those in Washington say they want the government to back away from housing. Except Washington has been pushing housing since before the Great Depression. And besides, FHA, Fannie and Freddie own or guarantee more than 90 percent of home loans. Government will never get out of this business.
When things go bad, the FHA gets hammered on its loans as I pointed out recently,
To sit on foreclosures is expensive. After FHA acquires a delinquent mortgage from the servicer, it pays for upkeep and marketing to the tune of $28.78 per day per house. Depending upon whom you believe, FHA is losing 63-71 cents on every foreclosure. Selling the delinquent loans seems to make sense. Especially in Florida, where the loans they auctioned were an average of 1,114 days delinquent.
The House Financial Services Committee is holding hearings concerning the role of the FHA, and the idea of shrinking the government mortgage insurer’s market share and improving its bottom line. They are fiddling while Rome burns.