FHA Loses $4.6 Billion - Denies Insolvency

The New York Times is reporting F.H.A. Faces $4.6 Billion in Losses.

Brian D. Montgomery, the F.H.A. commissioner, attributed the unanticipated losses primarily to the agency’s seller-financed down payment mortgage program, which has suffered from high delinquency and foreclosure rates in recent years.

My Comment: The only surprise here is how anyone can be surprised.

The Federal Housing Administration expects to lose $4.6 billion because of unexpectedly high default rates on home loans, officials said Monday. The projected loss is the highest in the home loan program since 2004, and officials said the F.H.A. had to withdraw $4.6 billion from its $21 billion capital reserve fund in May to cover the costs. They said the agency, which is self-sustaining, would not need appropriations from Congress to remain solvent.

But Mr. Montgomery warned that the F.H.A. would have to renew its efforts to end the seller-financed down payment program, which accounted for 35 percent of its loans in 2007.

My Comment: What efforts are there to renew? Did Congress mandate the FHA take 100% financed loans? If not, simply stop making the loans.

He said the mortgages had foreclosure rates three times those of traditional loans and would push the F.H.A. to the brink of insolvency.

“Let me repeat: F.H.A. is solvent,” Mr. Montgomery said on Monday in a speech at the National Press Club. “However, no insurance company can sustain that amount of additional costs year after year and still survive. Unless we take action to mitigate these losses, F.H.A. will soon either have to shut down or rely on appropriations to operate.”

My Comment: Sounds like to me the FHA is not solvent.

F.H.A.’s projected loss, more than four times the shortfall attributed to the home program last year, raised concerns about the agency’s ability to lead the national effort to rescue homeowners facing foreclosure.

The program, [seller financed down payments] which accounted for less than 2 percent of F.H.A.-insured loans in 2000, now accounts for more than a third of the agency’s portfolio. Housing officials said that 60 percent of F.H.A.’s anticipated loss was directly attributable to the seller-financed down payment program.

Supporters of the loans, who include some powerful members of Congress, counter that the program provides much-needed assistance to low-income and minority families who would otherwise be unable to buy homes.

My Comment: What's with these clowns that think everyone should have a house? This is how this mess all started.

Representative Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee, remains opposed to any F.H.A. rule that would eliminate the program, a spokesman said on Monday. Mr. Frank has said he would like to reform the program without killing it.

My Comment: Based on Frank's statement, it seems to me that the FHA can make a rule change if it wants. Montgomery simply has no courage to do what needs to be done. However, I would go one step further and eliminate the FHA itself. The entire program is just another useless waste of taxpayer money.

Comments

[Atlanta-Jim:]

The government is buying votes! Rebates, foreclosure bailouts and more! Years ago if you wanted a home you had to work overtime for a year and save up 20% + the down payment. Entitlement was not in the vocabulary! Sweat equity was!

2008 Jun 13 10:34 PM

[bearfund:]

User 210086, got that right. But these days we have access to the capital markets and can get free money by shorting Treasuries instead of working. It's literally making money by not working off of people thinking they can make money by not working. What could be better than the lazy man's way to profit from others' declared laziness? Go on, Messrs. Frank and Montgomery, borrow! Borrow without bound! Borrow for 5 years, for 10, for 20, and for 30! Run up that debt and then inflate it away while you collect taxes on inflation-created profits! Yes! I win, you lose!

Long gold, PST, TBT; short Treasuries.

2008 Jun 15 12:54 AM

[Jodi Sells ...:]

Like someone else already commented- no surprises here. I don't believe that sub-prime FHA loans are in concept such a terrible idea. It is the process they have in place to qualify such loans. The few banks that have done their home work and really spent the time investigating whether or not a client is a good risk, are doing just fine. It just so happens that those banks are holding onto the loans for the duration as well. FHA was the lender of choice for many that couldn't qualify else where and now they are paying for it.

2008 Dec 22 12:25 PM