“Another spill on aisle 3! It’s a big one so bring a bunch of mops!” How about $50 Billion of them!
According to the Wall Street Journal, FHA could be the next big dog in need of a taxpayer bailout. The alarm has been sounded by several experts, but the article focuses on a forthcoming report by Joseph Gyourko, a finance and real estate professor at Wharton, which estimates FHA’s impending losses over the next several years at $50 billion.
Don’t be surprised if you see this become a point of political debate as Gyourko’s paper was commissioned by a conservative “think tank” and several unnamed Republicans have been pushing FHA to raise it’s down payment requirement from the meager 3.5% it currently requires.
The FHA doesn’t make loans, rather it makes money by charging insurance premiums on the loans it guarantees. At the end of August it guaranteed 7.2 million mortgage worth $1 Trillion and had reserves of nearly 1/3rd the value at $31.7 billion, all of which but $2.8 billion is set aside to cover losses. If FHA is not able to cover the losses, no problem, the agency has an “indefinite budget authority” to draw down funds from the Treasury without Congressional appropriation.
For the full Wall Street Journal article: http://online.wsj.com/article/SB10001424052970203537304577030390221704000.html