Taxpayers To Get Another Shocking Bill

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Because the FHA is a federal agency, its guarantees are backed by federal assets. So in essence, these loans, too dangerous to be given out by banks without the agency’s backing, are now being insured by taxpayers. To illustrate the disaster that is potentially pending, 34% of the loans guaranteed by the FHA in 2007, have already gone into default only two years later, and because it has surpassed its budget and is losing money, the FHA has already begun to ask the Federal Government for more money. So what does this mean? It means that the largest operation is subprime lending is now being run by the U.S. government and its adverse effects are being paid for by you.

The FHA is doing as it always has: it’s guaranteeing loans for perspective homeowners who would not, otherwise, be able to qualify. But how low will its standards go, and how effective is any agency that is operating at 12 times its normal capacity? What are the effects of the agency’s inability to price for risk, and how many mistakes slip through the FHA’s overtaxed system? Whitney Tilson, manager of T2 partners, suggests that the FHA’s portfolio is near $1 Trillion and while we cannot expect all of those mortgages to fail, according to Guy Cecala, publisher of Inside Mortgage Finance, the FHA will end up costing taxpayers $100 billion.

Ultimately, if the FHA fails and needs to be bailed out, as did Fanny Mae and Freddie Mac, the help it will need will come from one source only, the American taxpayer. The FHA is a federal agency and the guarantees it offers are backed 100 percent by the public coffers. If we are still reeling from the amount of money we had to pay to keep some of our nation’s financial institutions intact, we should be aware of just how much responsibility we are transferring onto a federal agency which, if it fails, will add another bailout to our tabs.
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