Yikes: The Federal Housing Administration isn’t looking too good, is it?
posted at 2:01 pm on November 19, 2012 by Erika Johnsen
Of President Obama and the Democrats’ many refrains that irk me to no end, the incessant iterations of “we need to further regulate big finance and kill the Bush tax cuts in order to avoid the policies that got us here in the first place” are among the worst. That type of blather conveniently ignores the federal government’s massive role in bringing about the financial crisis and paves the way with excuses for even more government intrusion. As much as President Obama wants us to believe the financial crisis was caused by rich fat cats taking advantage of the poor and Wall Street playing fast and loose with everybody’s money, he meticulously avoids mentioning that federal policy created many of the incentives and market distortions that preempted it all, and doubles down on the actual big-government policies that got us here in the first place.
The housing market does seem to be very slowly and laboriously picking itself back up again, but we’re nowhere near out of the woods, and yet another taxpayer bailout to the tune of billions of dollars may very shortly be in the works. Explains Edward Pinto at The Atlantic:
[F]igures released today from the Federal Housing Administration (FHA) throw a sobering splash of cold water. FHA’s FY 2012 Actuarial Study for its main single family program shows that its capital position has turned negative, by $13.5 billion. That’s a shift of $23 billion in economic value in a single year, and it puts the 78-year-old agency $34.5 billion short of its legal capital requirement.
If it were a private company, it would be shut down. …
The implosion of the government-sponsored enterprises Fannie Mae and Freddie Mac in 2008 did not end the government’s massive — and distorting — role in the housing market. Instead, in the wake of their bailouts (taxpayers have forked over $180 billion and counting), much of the risk was simply shifted to the FHA. Indeed, FHA’s insurance portfolio quadrupled in the past 5 years to $1.1 trillion today. The result is that FHA now guarantees 16 percent of all US mortgages, and 30 percent of all new home purchase mortgages. This is not an accidental trend: the FHA deliberately tried to “grow” its way out trouble, essentially betting the house on housing’s recovery. Friday’s numbers confirm that like Fannie and Freddie, it’s easy to gamble when the taxpayer covers your losses.
The problem with what is essentially a government monopoly trying to “grow” their way out of trouble and taking risks with money that isn’t theirs? More from WaPo:
Right now the critics are starting to look pretty prescient. By law, the FHA is supposed to hold reserves equal to 2 percent of its portfolio. But an independent, actuarial study released Friday showed that expected losses are so high that the FHA’s reserves will be the equivalent of negative 1.44 percent, or $16.3 billion, for fiscal 2013.
Indeed, the FHA’s predicament is worse than the $16.3 billion figure suggests. If interest rates remain low, more high-quality loans will be refinanced out of the FHA’s portfolio, leaving the agency with the dregs. No one can predict these flows with precision, since the FHA also has a program to retain good-quality, refinanced loans. But the actuarial report suggests that protracted low interest rates could drive the FHA’s capital reserve shortfall above $30 billion. …
Yet even a healing economy is a mixed blessing for the FHA. As household finances improve, more borrowers can qualify for loans without the FHA’s help, which deprives the agency of the market share it needs to bolster its portfolio.
Might the federal government have learned a little humility and backed away from their social-engineering and disastrous fiscal policies in the calamitous aftermath of the financial crisis? Dream on. The feds are still targeting l0w-income borrowers and trying to apply various bureaucratic band-aids to gaping wounds; as Pinto points out, more than 1 in 6 FHA loans are delinquent for thirty days or more, and these delinquencies coming home to their foreclosure-roosts could spell big trouble for the meager housing recovery. With the Obama administration at the helm, continuing on in the reliable Democratic fashion of attacking the symptoms instead of the disease, I’m optimistic for neither our national deficit nor our economic growth. The bailouts will continue until morale improves, or something.