As if it wasn’t bad enough that the government has lost $241 B on Fannie Mae and Freddie Mac the FHA’s (Federal Housing Administration) annual financial status report to congress, released on Friday, projects that they are likely to be in the hole by $16.3 B. Although the FHA has sufficient reserves to cover about $30.4 B in projected losses the total losses are expected to materialize closer to $46.7 B. The taxpayer is probably going to be asked to bail them out sometime early next year.
I haven’t been able to find any estimates of the size of the bailout required but if you assume that the FHA will need to get back up to their mandated 2% reserve on their $1.1 Trillion portfolio then they will need an infusion of $38 B to get to a $22 B reserve.
The FHA provides insurance to lenders so that they can lend money to homeowners who put down as little as 3.5%. That’s not a lot of skin in the game and low down payments were one of the drivers of the current mortgage crisis. It should be no surprise that, according to a Wall Street Journal article, 9.6% of all their insured loans are either 90 or more days past due or in foreclosure. The Journal article goes on to say that “Most of the agency’s losses stem from loans made between 2007 and 2009, as the housing bust deepened. Loans made since 2010 are expected to be very profitable.”
This is just another sorry chapter in how the government has poured money down the drain trying to subsidize the housing market and has played a role in fueling the housing bubble. When you step back and tally all the misguided programs and consider the country’s current fiscal problems it’s rather shocking:
- Fannie Mae
- Freddie Mac
- Ginnie Mae
- Federal Housing Administration
- Mortgage interest deduction
- Home buyer tax credits of the last few years
According to the Wall Street Journal article, between Fannie, Freddie, and the FHA the government is backing 90% of all new mortgages these days. Of course, most realtors love this stuff.