Friday, September 04, 2009
FHA lines up for a bailout
“FHA is designed to help stabilize the economy, operating within manageable, low-risk loans,” [Federal Housing Administration commissioner Brian] 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.”
and yet, in the emergent panic over the collapse of the housing bubble in 2007, FHA was asked to become exactly 'a mega-agency to subsidize bad loans' that did dramatically enlarge its portfolio with problematic, high-risk loans.
but the problems of the FHA are small beer compared to the troubles that will come down when FHLB system and GNMA -- the two federal agencies that were forced to stand in for GSEs fannie mae and freddie mac as the financing for each expired -- come a-knocking with the tremendous losses they've been busy booking since china began its great shift away from agency debt. it was long ago apparent that these institutions would have tremendous difficulty standing in for the failing GSE complex. i fear there's plenty more bailing where FHA, FNM and FRE came from -- particularly if, via calculated risk, john burns consulting has it right:
Based on the issues at the FHA, the end of the tax credit, and more supply coming on the market, Burns concluded that "housing could see another leg down later this year or early next year":[W]atch the growing controversy regarding the FHA very carefully. The decisions made to allow the FHA to continue lending will have a huge impact on the housing market, particularly when so few entry-level buyers have a substantial down payment.