Thursday, October 22, 2009

The FHA failed a recent audit

Reckless lending practices are part of what got us into the current financial crisis, and the government's response has been...
The Federal Housing Administration may be under-equipped to manage its exploding market share, according to an internal audit released last week. The report gave the FHA poor marks for its steps to screen lenders that are allowed to sell loans backed by the federal agency.

The FHA’s market share has grown sharply as the private mortgage market collapsed over the past two years, and the FHA now insures around one-quarter of all U.S. mortgages, up from around 2% in 2006. ...

The audit, by the inspector general for the Department of Housing and Urban Development, found that the agency was under-equipped to manage a big inflow in applications by lenders to make FHA-backed loans. ...

The agency’s management of its affiliated lenders remains a top concern because the FHA’s financial reserves have dropped below mandatory levels for the first time in its 75-year history. Critics warn that rising defaults on FHA-backed loans could require a taxpayer bailout, but agency officials insist taxpayer money won’t be needed. Fraud remains a top concern as defaults rise on loans backed by the agency. ...

Some in Congress want the agency to do more by increasing minimum down payments to 5%, up from the current 3.5%. The agency says that such a move would kill any nascent housing recovery.
Things are really messed up when 5% down payments would "kill any nascent housing recovery." 20% down payments used to be the norm. Is America really that addicted to debt?


  1. Pithily put -- it is indeed "messed up" that the FHA is opposed to 5% down. It is abundantly clear that as many on this and other voices of sanity have said, the official policy of the government & its masters in the banking industry are determined to reflate the housing bubble, delaying and making worse the inevitable. Are we really that desperate or stupid? (Case in point: Barney Frank (D-FNM) saying that the official policy is to trade off at least some bad loans for a "housing recovery." You couldn't make this up, really.

  2. Is America really that addicted to debt?
    ummm...yes? Fannie and Freddie and FHA are NOT the proximate cause of the housing bubble, since even at their profit shifting fraudiest they still had some concept of "underwriting." But once Mozillo and friends drove the mortgage market over the cliff, it seems like almost everybody wants the Goverment to step in and buy all the bad loans that that Wall Street won't anymore. Dumb, and dumberer.--Jim A