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.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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