The FHA is at 'high risk" of failure. Why are we all not surprised? A government agency that cannot maintain financial feasibility! For something completely different, it appears that another government agency is not functioning properly. The Government Accountability Office (GAO) has some serious concerns about the Federal Housing Administration (FHA) . There appears to be good reason for this. Apparently, the FHA is “incredibly vulnerable to fraud, waste, abuse, and mismanagement” according to a recent GAO report, and the office is calling for direct oversight of the office in order to “straighten out” the FHA as quickly as possible without straining the U.S. Treasury with a bailout. Among other issues, the FHA’s Mutual Mortgage Insurance (MMI) Fund has not met its two-percent capital requirement. To address this problem, the FHA has implemented fee increases and underwriting changes, but the GAO warns that the moves have not done enough and that presently the FHA’s practices pose significant risk to the market. Government at its finest – it does not function properly, so levy another tax to raise more money.
Chairman of the House Financial Services Committee, Jeb Hensarling (R-TX), addressed GAO concerns in a public response. Hensarling has led several hearings this month on the state of the FHA. Hensarling warned that the report “reinforces everything our committee has been saying about the FHA for some time now: it Is a high risk to taxpayers; it is a high risk to the mortgage market, and it represents a high risk to the economy”. He warned that the FHA is “broke and quickly approaching bailout-broke.”
Of course, none of this addresses the fact that the FHA has been recently underwriting the type of loans that spawned the housing crisis in the first place. The FHA will gladly fund a home purchase at 96.5% loan to value with credit scores of 600. It will fund 90% loan to value if credit scores are below 600. Dodd-Frank has not helped matters either since it mandates similar loans.
Comments(3)