You would think after destroying the housing market for the next 20 years the RINOs and Democrats would realize artificially flooding the real estate market with cheap, low-accountability loans is a bad idea.
One place to start is the Federal Housing Administration, the nation’s insurer of nearly $750 billion in outstanding mortgages. The agency acknowledged this month that a new but still undisclosed HUD audit has found that FHA’s cash reserve fund is rapidly depleting and may drop below its Congressionally mandated 2% of insurance liabilities by the end of the year.
The FHA has $750 billion in outstanding mortgages? Why has the United States government loaned out $750 billion dollars to the housing market? But I am sure they have done it responsibly.
At a 50 to 1 leverage ratio, the FHA will soon have a smaller capital cushion than did investment bank Bear Stearns on the eve of its crash. (See nearby table.) Its loan delinquency rate (more than 30 days late in payments) is now above 14%, or from two to three times higher than on conventional mortgages. Its cash reserve ratio has fallen by more than two-thirds in three years.
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The reason for this financial deterioration is that FHA is underwriting record numbers of high-risk mortgages. Between 2006 and the end of next year, FHA’s insurance portfolio will have expanded to $1 trillion from $410 billion. Today nearly one in four new mortgages carries an FHA guarantee, up from one in 50 in 2006. Through FHA, the Veterans Administration, Fannie Mae and Freddie Mac, taxpayers now guarantee repayment on more than 80% of all U.S. mortgages. Sources familiar with a new draft HUD report on FHA’s worsening balance sheet tell us that the default rates have risen most rapidly on the most recent loans, i.e., those initiated or refinanced in 2008 and 2009.
Here is the chart, notice how after the housing bubble burst the FHA increased its leverage. They doubled down on insanity.
Nothing surprises me anymore when it comes to politics. I’m going to love the rhetoric gymnastics the Democrats engage in when the next housing crisis happens.