Sometimes you just read something and think to yourself…. WHAT ELSE DID YOU EXPECT WOULD HAPPEN!?!
From the WSJ:
The Federal Housing Administration, hit by increasing mortgage-related losses, is in danger of seeing its reserves fall below the level demanded by Congress, according to government officials, in a development that could raise concerns about whether the agency needs a taxpayer bailout.
snip
The FHA insures private lenders against defaults on certain home mortgages, an inducement to make such loans. Insurance from the New Deal-era agency has enabled lending to buyers who can’t make a big down payment or who want to refinance but have little equity. Most private lenders have sharply curtailed credit to those borrowers.
Exactly… Lenders won’t lend to folks who can’t make a down payment or don’t have equity because they are a credit risk. When the government gets involved to fix the system it almost always does more harm than good. By insuring borrowers who are on the bubble, the government is simply encouraging reckless behavior. A lot of the time this won’t cause any major problems, but when things go bad, they will go bad very quickly.
Policymakers have used the FHA to stabilize the housing market by pushing it to offer credit with far easier terms than that offered by most private lenders. For example, it will back loans with down payments as low as 3.5%.
Much of the FHA’s risk comes from its growing exposure to the broader economic downturn. The FHA is particularly sensitive to home price declines because of the small down payments it will accept, which can quickly become wiped out by fall in home values.
Ooh-ooh, let’s muck with the market some more, and go broke even faster! In today’s environment when home values are collapsing, why on earth would we want to allow even lower down payment loans? You’d think an ounce of economic sense would be called for in our situation – except that isn’t politically palatable. Just remember as things have fallen apart, the FHA standards have continually been loosened. Just when it is time to start tightening things up, we loosen them the other way.
Wake up people… Giving more credit to folks that shouldn’t have it in the first place, paying for cars that shouldn’t be purchased and attempting to press the consumer to buy is a recipe for disaster. Anyhow, buy puts, lots of them. We are building up another house of cards that will come tumbling down harder than ever before.
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