04.10.2013
Obama Took On More Housing Risk, FHA Now Insolvent
original article written by Net Advisor™
Washington DC. The Federal Housing Authority (FHA) is insolvent. President Obama said that the FHA will require $943 Million bailout to cover taxpayer-backed insured home loans it made to more risky borrowers.
The FHA reportedly has $30 Billion in cash on hand; however, all of this money is still not enough to cover the current insured mortgage losses that the government guaranteed.
“The White House estimates the government agency has nearly $30 billion on hand, but it won’t cover estimated losses on FHA-insured loans.”
— Source: Reuters, 04-10-2013
In 2011, President Obama appointed liberal leaning Carol J. Galante as assistant HUD Secretary and FHA Commissioner. In December 2012, Galante become head of FHA. FHA’s previous chief, David Stevens left after two years, unable to solve FHA’s mess. Stevens is now CEO of the Mortgages Banker’s Association, a lobby organization representing the real estate finance (mortgage and banking) industry.
Did the Obama Administration Take On More Housing Risk?
In 2009, I wrote an article warning that the FHA encouraged risky home loans. Around that time, the FHA backed “nearly 2 million mortgages worth at least $328 billion.”
“Some observers worried that the FHA is setting up a second housing bubble. In the first six months of 2009, it backed nearly 2 million mortgages worth at least $328 billion and insured 21.5% of all new mortgages last year, up from fewer than 6% in 2007.”
— Source: Washington Post (PDF)
HUD Secretary Shaun Donovan said in 2009 that “there will be no tax payer bailout” of FHA.
In 2012, the FHA raised the insurance costs to home buyers, and insisted that with a $25 Billion settlement from the mortgage industry, that a FHA bailout was no longer necessary (CNBC PDF). If you increase the cost to a home loan to those who can’t afford the mortgage anyway, what do you think the result will be?
Since the Obama Presidency, FHA now backs $1.1 Trillion worth of U.S. mortgages.
“The FHA is a major source of funding for first-time home buyers and people with modest incomes. It currently backs $1.1 trillion in loans.”
— Source: Reuters, 04-10-2013
Thus the Obama Administration has more than tripped the size of insuring higher risk mortgages.
Government Mortgage Bailout Programs: A Costly Failure
In 2009, President Obama announced a taxpayer funded $75 Billion ‘Foreclosure Prevention Plan’ (Fox News PDF).
In 2010, the U.S. Treasury said it would spend $50 Billion toward housing bailouts. Despite all this taxpayer money thrown at rescuing bad home loans, banks repossessed some 1 million homes in 2010 anyway (CNN PDF).
In 2011, President Obama made it even easier for low income and otherwise more risky home borrowers to retain their homes in a new taxpayer-backed program. After realizing Obama’s taxpayer bailout of bad mortgages was a total waste of money, Congress canceled the funding for Obama’s Foreclosure Prevention Program (Bloomberg PDF).
Even More Taxpayer Money for Mortgages?
After the failure of previous government mortgage bailouts, the Obama Admission came up with a third housing bailout program in 2012 called the Home Affordable Refinance Program (HARP) or “HARP 3.0.” The program is for those who are not behind in their mortgage who are not able to refinance their existing home loan (restrictions apply). The President claimed (PDF) the program will save the average borrower $3,000 a year. The unknown cost of this program is funded by taxpayers. There is no data we could find to support the President’s savings claim.
Clearly the housing market is not fixed, and no one in government wants to reduce the housing risk. Instead of reducing the taxpayer’s liability, the Obama Administration has increased it by over 300%. Thus the Obama Administration has tripled the liability of FHA which is now financially insolvent requiring taxpayers to bailout Obama’s increase in risky mortgages.
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