Jul
23
FHA is out of money.
From Zero Hedge:
We can pretend that that the FHA does not need a bailout, but it does. Unlike its bad siblings, Fan and Fred, there has never been a question whether Uncle Sam is on the hook with FHA. We don’t need a fancy conservatorship this time. Tim Geithner over at Treasury will just write the checks to cover the shortfalls. The good news is that those debts will not show up on the Federal balance sheet. They don’t count because there are “assets” behind these loans.
The FHA has been duplicating the efforts of Fannie and Freddie – ie, loaning money to people who don’t actually qualify for the loans. Now their reserves have fallen below the statutory requirement, probably because of rising default rates. The linked article goes on to note that this is probably just the first step in tightening up the lending rules – which is actually good financial sense. Trouble is, in my view, that it might be too late – that we might already have too many bad loans on the FHA books.
One thing certain is that any tightening by the FHA will be a huge hit to the real estate market. Its been pretty much all FHA since the financial crisis hit two years ago – no one else is lending all that much (stupid as bankers are, they do see the illogic of writing loans on things which are continually losing value).
To me, this is just another indicator that the wall is being hit – we’re just out of money and rapidly running out of time. The big crash is coming – though, as usual, we can expect the government to exert all efforts to keep the crash at bay until after November 2nd.
