For the first time in it’s 79 year history, FHA will require a $1.7 BILLION dollar bailout. If FHA were held to the same standards as private mortgage insurers, this hole would be $25 BILLON.  One in eight families getting an FHA loan from 1975 to 2011 has already been or will end up in foreclosure. As the bubble developed, the Department of Housing and Urban Development (HUD) forced Fannie Mae, Freddie Mac, and private lenders to adopt, and even go beyond, FHA’s weak underwriting practices. In 2004, HUD took credit for mandating looser underwriting by what it termed a “revolution in affordable lending”. In other words, if you have a pulse you qualify.

This trend continues as the Fed seems to be happy placing marginal and poorly qualified buyers into situations where the outcome is almost certain. But some still insist on feigning surprise and shock:

“This is incredibly disappointing,” stated Rep. Randy Neugebauer, R-TX. “I’m shocked to find out now that FHA will require nearly double the amount they projected. Unfortunately, the Administration is losing credibility on this issue.” He continued, “This news is a clear sign that we must act quickly to reform the FHA, or taxpayers will be paying the price again and again.”

Yes, we must act quickly – because that’s what Washington is known for; being quick and decisive. The FHA draw does not need direct authorization from Congress, which means there is no ‘must pass’ piece of legislation. What this means is that like the debt ceiling, there is no reason to even slow down – just keep things rolling and let the tax payers absorb the hit. Spending equals a recovering economy so keep it up.

Hold on – Maxine Waters says it’s not as dire as the data indicates….

“Although this one-time transfer of funds from the Treasury is legally necessary, it’s important to note that FHA is far from bankrupt, holding over $30 billion in reserves and continuing to generate revenue,” explained Rep. Maxine Waters, D-Calif. She concluded, “Above all, we must strive to have a healthy, viable FHA that can continue to facilitate homeownership for first-time and low-income homebuyers, while standing ready in the unfortunate event of another housing downturn.”

Her comment is so asinine and absurd that it almost defies logic – but this is the standard approach by Washington. Keep pumping money into things where failure is all but certain and then have the tax payers write the bail out check. Washington assumed a stranglehold over the real estate industry (I mean helped) and they continue to pump money into MSBs to artificially prop up the market. This will end in disaster, the only question is who will catch the blame?

Home buyers know the mortgage market is chaotic at best – many times it seems as if the best qualified have the most trouble…we’ve posted many articles over the years about qualifying for mortgages. The only thing certain is that no one is surprised by anything anymore. Nightmare at FHA is a great site for all things wrong with FHA – hit the map and you can see data down to the zip code for Atlanta and many other areas around the nation.

Hank Miller, SRA
Associate Broker & Certified Appraiser
678-428-8276
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www.hmtatlanta.com