Bailout worries for government mortgage backer
Posted
Oct 09 2009, 03:53 PM
by
Kim Peterson
Rating:
Want to buy a house with just 3.5% down and high monthly payments? Talk to the Federal Housing Association, which still backs loans on terms that private lenders would never go for.
And now, the FHA is having so many problems that it may need a taxpayer bailout, reports the New York Times. Doesn't take a rocket scientist to see a disaster in the making here.
FHA head David Stevens is trying to downplay the issue, saying his agency will not need a bailout. But at the same time, he admits that 20% of the loans the FHA insured last year are facing foreclosure or other serious problems, according to The New York Times.
The FHA wasn't meant to turn out like this. It was created to facilitate home purchases for lower-income and first-time buyers with government-backed loans.
But now, many banks are asking for 20% down, or they have other strict lending requirements. And so the FHA has become a place to turn for people that don't have that kind of cash. That has left the FHA insuring about 6,000 loans a day, the Times reports.
So what to do with this group? Politicians are divided. Republicans are trying to rein in the FHA, worried that they could see a repeat of the problems with Fannie Mae and Freddie Mac. In the last year, those two companies have taken $96 billion from the Treasury.
Democrats say that because the banks are such tightwads now, the FHA is needed to help people buy homes. Without the FHA loans, housing prices would have plummeted to unprecedented depths and the economy would be even more decimated, they say.
It's hard to see where this is all headed. The FHA may indeed be able to save what appears to be a sinking ship. But it makes me feel better to see that one man, the guy running the FHA's watchdog, appears to be asking the right questions.
“What does the FHA think it is doing by asking only 3.5 percent?” asked Kenneth Donohue, the inspector general of the Housing and Urban Development Department.
He's right. The FHA needs to raise its minimum down payment requirements. That will force some people to remain renters, but it could make the difference between an agency that helps out and an agency that is bailed out.
