The Federal Housing Administration is close to bankruptcy. This government subsidy program is part of an overall mortgage market that is owned by the government. There has not been a free market in mortgages since September 2008. Even then, the market was rigged.
We keep hearing about a housing recovery. That recovery rests on a never-ending federal deficit. The red ink is permanent.
The FHA’s reserves are gone. It is calling on Congress for a bailout, which will be the first in its history. It has operated for 78 years.
It has been teetering on the edge of bankruptcy since 2009
The FHA backs up mortgages with government insurance. Now it needs a backup.
The FHA lets low-income borrowers get mortgages with a down payment of 3.5%. In short, it is in the subprime mortgage business. It wants to stay in this business.
One by one, the boondoggles are going broke. The Post Office is close to the edge, too.
In 2011, FHA insured over 16% of new American mortgages.
If Congress agrees, it will lower the reserve requirements for FHA. That will make FHA a subprime agency. If Congress comes to the rescue, it will send a message: “Subprime mortgages R Us.”
The acting commissioner of the FHA issued this statement: “We will continue to take aggressive steps to protect FHA’s financial health while ensuring that FHA continues to perform its historic role of providing access to homeownership for underserved communities and supporting the housing market during tough economic times.”
Acting commissioner? Where’s the real one?
A year ago, FHA’s real commissioner made a similar statement. It turned out to be overly optimistic.
The FHA is facing rising delinquencies. That means that statistical reality is catching up. Loans to bad risks turn out to be more risky. Who would have known?
How many bad loans? About 9.6%. This is up from 8.8% a year earlier.
No private lending agency would tolerate delinquencies this high. But that’s what government is for: to run losing businesses at taxpayers’ expense. It’s just doing its job.
Is this Ponzi economics? You bet it is.