Join        Login             Stock Quote

FHA On the Ropes

 November 20, 2012 04:12 PM



(By Tom Lindmark) Since we've already ponied up about $140 billion keeping Frannie afloat, the news that FHA most probably is going to need at least $13   billion to maintain a minimum amount of solvency probably makes you shrug and note it's just chump change. Keep in mind that once upon a time, a central banker assured all of us that a measly $50 billion hiccup in the subprime mortgage market was nothing to worry about and posed no danger.

The WSJ today reported that FHA is pretty much bankrupt or whatever the government equivalent of that situation might be.

[Related -Initial Jobless Claims Rose Unexpectedly]

The Federal Housing Administration will exhaust its capital reserves and faced a deficit of $13.5 billion at the end of September, according to the agency's independent annual audit set for release on Friday.

The report shows that the agency's reserves aren't adequate to pay for expected losses on the $1.1 trillion in loans that it guarantees, which means the agency is likely to require taxpayer funding for the first time in its 78-year history.

A companion piece gives a bit more detail:

[Related -All Quiet on the Record High Front]

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.

The FHA's annual audit estimates how much money the agency would need to pay off all claims on projected losses, against how much it has in reserves. Last year, that buffer stood at $1.2 billion, representing around 0.12% of its loan guarantees. Federal law requires the agency to stay above a 2% level, which it breached three years ago.

I think it's pretty much fair to say that the agency is pretty much unreserved, don't you.

Lest you think that FHA is just a Johnny Come Lately to the party and somehow managed to nurse along a lot of loans made during the bubble years, reconsider. It seems that the bulk of its delinquent loans were made in 2007 and 2008. If memory serves the world pretty much had figured out then that making essentially no down payment mortgages carried a bit more risk than conventional wisdom had dictated. Perhaps they were buying the snake oil that central banker was selling at the time.

Now there is still hope that you Dear Taxpayer won't have to step up to the plate on this one. The government's shakedown racket might plug the immediate hole, at least that's been the ongoing hope:

In each of the last three years, Obama administration officials have shot down the idea that the agency would draw on the Treasury, except under the most dire home-price forecasts. As recently as this past February, when the White House's budget forecasts showed that the FHA was in the red by nearly $700 million, officials said pending legal settlements with large banks would plug that hole.

Administration officials could announce measures that would either avert the need to draw on the Treasury or cushion the blow of such a move, such as raising mortgage-insurance premiums and finalizing additional legal settlements with lenders, industry analysts expect.

Assuming that the money can't be squeezed from the private sector, despair not. The FHA apparently has what is called "permanent and indefinite" budget authority. In English that means that no one, not Congress, no one has to act on their need for cash. The Treasury is obligated to advance them whatever amounts of money they need. Why can't we do this with everything and avoid all these fiscal cliff dramas?

Well, as I said at the start of this post, there isn't probably anything to get worked up about here given a $13 billion rounding number. Just a one time shot of money from somewhere will put all of this behind us. Won't it?

 Related Posts

iOnTheMarket Premium


Post Comment -- Login is required to post message
Alert for new comments:
Your email:
Your Website:

rss feed

Latest Stories

article imageInitial Jobless Claims Rose Unexpectedly

Claims unexpectedly rose in the latest report through last weekend to breach 300,000 for the first time read on...

article imageAll Quiet on the Record High Front

What can we glean from the media’s lack of attention to the market’s recent record read on...

article imageThe Chip Maker Short Sellers Should Be Watching

Investing in semiconductor stocks is always tricky. Industry cycles can lead to bumps in the road for the read on...

article imageChicago Fed: US Economic Growth Slowed In October

The pace of US growth slowed more than expected in October, according to this morning’s update of the read on...

Popular Articles

Daily Sector Scan
Partner Center

Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.