Tuesday, June 10, 2008
FHA eyeballs insolvency
It doesn’t get much more stark than the barb lobbied by Federal Housing Administration commissioner Brian Montgomery on Monday afternoon — stop allowing down-payment assistance, or send the FHA into insolvency.
The admonishment by Bush adminstration officials over down-payment assistance programs comes as lawmakers are increasingly looking to the Depression-era agency to backstop a flailing housing market; Mongtomery said that HUD would reopen to public comment a hotly-contested proposed rule that would look to ban the down-payment assistance program.
“We are concerned about this business because the substantial losses affect FHA’s bottom line and FHA’s ability to serve American citizens who need access to prime-rate home loans,” he said.
“Given these concerns, we cannot just stand by – we must make our case again.”
It’s a case that met with stiff resistance the first time around, particularly from the nonprofit organizations that provide the so-called DPA programs.
“Losing one third of the FHA’s business that uses downpayment assistance will deny annually over one hundred thousand qualified moderate income, minorities, first-time homebuyers and women-headed households from becoming homeowners,” said Ann Ashburn, president of AmeriDream, Inc., a large down-payment assistance provider.
She argued that denying key groups the ability to purchase a home would further destabilize an already-wobbling housing market.
note that ameridream (whatever the hell that is supposed to imply) doesn't even attempt to address the fiscal reality for FHA -- their message is simply to keep throwing free money at them... oh, and their clients, of course.
It’s becoming clear that attempts by lawmakers to push troublesome loans into HUD’s arms may have their financial — and perhaps their political — limits. In his remarks Monday, Montgomery alluded to a mortgage relief proposal backed by House Financial Services Committee chairman Barney Frank (D-MA), characterizing the proposal as “well intentioned” but also “worrisome,” suggesting that it would “endanger the housing market” by asking the FHA to assume the risk on an increasing number of bad loans.
“FHA is designed to help stabilize the economy, operating within manageable, low-risk loans,” Montgomery said. “It is not designed to become the federal lender of last resort, a mega-agency to subsidize bad loans.
“We don’t want to dramatically enlarge FHA’s portfolio, with a substantial portion of the portfolio problematic, high risk loans that cost homeowners who were careful and bought homes within their means.”
i'm rarely in the same boat as the bush administration, but one can hardly oppose the goal of keeping FHA solvent. congressional action to bolster housing is inevitable and (even from a cynic's eye view) well intentioned. but the folks who continue to think that high LTV loans are somehow a good idea -- even that the positive consequences begin to outweigh the negative -- have utterly missed the boat on how and why the housing collapse is now so pernicious and truly constitutes a threat to the broad economy.
UPDATE: more from tanta. and yves smith.