WSJ Preps for an FHA / Ginnie Mae Bailout

One place to start is the Federal Housing Administration, the nation’s insurer of nearly $750 billion in outstanding mortgages. The agency acknowledged this month that a new but still undisclosed HUD audit has found that FHA’s cash reserve fund is rapidly depleting and may drop below its Congressionally mandated 2% of insurance liabilities by the end of the year.

At a 50 to 1 leverage ratio, the FHA will soon have a smaller capital cushion than did investment bank Bear Stearns on the eve of its crash. Its loan delinquency rate (more than 30 days late in payments) is now above 14%, or from two to three times higher than on conventional mortgages. Its cash reserve ratio has fallen by more than two-thirds in three years.

- “Subprime Uncle Same”, The Wall Street Journal, September 29

These guys are definitely going to need a government bailout a la Fannie Mae (FNM) and Freddie Mac (FRE). The Wall Street Journal editorial page is really hammering on the FHA and Ginnie Mae. For example, also see: “The Next Fannie Mae: Ginnie Mae and FHA Are Becoming $1 Trillion Subprime Guarantors”, The Wall Street Journal, August 11.

Comments

[Pat Shuff:]

The WSj editorial page hammered Fannie, Freddie for ten years. No one listened then either or payed attention or learned anything. Nor from S&Ls or LatAm debt crises or Asian Contagions. If you can't lick'm, join'm. Victim or victimizer take your pick. After awhile, a long while, arriving somewhere beyond caring, one comes to prefer it that way.

Sep 30 11:56 AM

[meorah:]

the WSJ article says 3.5% down is absurdly low and recommends raising it to 5%... because if you can't afford 5% down, you can't afford the house. *boggle*

who does he think he's kidding? it's a whole $3000 difference on a $200k house. Either 3.5% is fine, or you should have 20% in which case you'd qualify for a conforming private loan.

the only thing moving the starting mark from 3.5 to 5.0 would do is rerquire all sellers of FTHB-class houses to take an extra $3000 hit in closing costs. The buyers would still have the exact same amount of skin in the game assuming a sale. The sellers would be less likely to sell since having to eat an extra $3000 above and beyond existing concessions and realtor fees on a $200k house would suck.

3.5 or 20 percent... in-betweens are illogical compromises of your true philosophy on housing.

Sep 30 04:17 PM