The FHA is Blowing Up: Bad News for the Housing Market

A very important article came out from the Wall Street Journal yesterday titled “FHA Nears Need for Taxpayer Funds,” and it outlines the serious financial problems facing the Federal Housing Administration.  For those that are unaware or need a refresher, the FHA has been the key element to the phony “housing recovery” the government has been trying to create.  In the wake of the collapse of 2008, Fannie Mae and Freddie Mac blew up and what was left to pick up the pieces was the FHA.  No private player would issue loans with down payments of 3%, but this was no problem for the FHA!

Interestingly enough, a lot of the subprime borrowers that blew up the housing market the last time became the primary customers of the FHA.  Let’s see, 3% down and subprime borrowers…what could possibly go wrong?!  From the WSJ:

The Federal Housing Administration is expected to report this week it could exhaust its reserves because of rising mortgage delinquencies, according to people familiar with the agency’s finances, a development that could result in the agency needing to draw on taxpayer funding for the first time in its 78-year history.

Together with Fannie and Freddie, federal agencies are backing nearly nine in 10 new mortgages.

The FHA accounted for one third of loans used to purchase homes last year among owner occupants.

Though the agency guarantees fewer mortgages than either Fannie or Freddie, it now has more seriously delinquent loans than either of the mortgage-finance giants. Overall, the FHA insured nearly 739,000 loans that were 90 days or more past due or in foreclosure at the end of September, an increase of more than 100,000 loans from a year ago. That represents about 9.6% of its $1.08 trillion in mortgages guaranteed.

This is a big deal.  The FHA is already in trouble despite a miraculous “housing recovery” and we haven’t even hit a severe cyclical economic slowdown yet, which is almost certain to occur in 2013.  What shambles do you think the housing market will be in once that happens and the last backstop to housing is broke?  You can kiss this “housing recovery” goodbye.  I think home prices nationally could fall 25%+ from here.  For more detailed thoughts on housing read my piece from April titled Thought of the Day – House Flipping in Colorado.

Full WSJ article here.

In Liberty,
Mike

5 Comments

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  1. It is all ‘Smoke and Mirrors’, the USA, the UK and other countries are essentially bankrupt, they are trying to demonstrate otherwise through various different means (deceptions), but at the end of the day, when there is no money in the pot and debts can’t be covered, then you are bankrupt! Trying to say otherwise is just deception, it’s time to come clean!

  2. who is the other 10%? VA? + Small Business Purchases?

  3. My conventional mtg loan that I just refinanced to get the lower interest rate, was suddenly (for no reason I can tell) sold to Freddie Mac. Boy, was I pissed. I called them, and they gave this excuse that they buy secondary market loans to free the banks up so they can make more loans. I had no idea I was considered sub-prime. Nobody told me this but that is what Freddie buys. The only thing I can think of, is my house is worth $5000 less than I owe…not due to anything I did, but my house has depreciated in value, like everyone else’s house in my neighborhood.

    It just makes me mad. This is the only house I ever bought, and I did it all by myself and without Government assistance. Now, the Govt owns my loan. My “servicing” company remains the bank I originally took the loan out with.

    It doesn’t matter what you do anymore, the government or big crony capitalists (most likely the two coordinating with each other) will DECIDE FOR YOU how you will live.

  4. Saint Bernanke has it all under control. No need to fear, Ben is here. I have this image in my mind of a bearded superhero, adorned with his cape, then casting it over his shoulder and declaring, “To the Print-Mobile!”

  5. No, it’s “good news” for the housing market. The Fed is doing everything it can to create inflation in something that is essential for life. That is the very definition of evil. When prices go down, it’s “good”.

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