"Housing and Urban Development Secretary Shaun Donovan told the House Financial Services Committee last week that "unlike many other institutions," the taxpayer-backed Federal Housing Administration "retains a positive fund balance and the current book of business is strong." If only the numbers would cooperate.
The American Enterprise Institute's Ed Pinto recently unearthed new FHA lending data buried in a little-known HUD website called Neighborhood Watch. As of Oct. 31, 17% of FHA's loans were in delinquency or in trouble, up slightly from September. Of that total, 9% of FHA loans are "seriously delinquent," up from 8.2% at the end of June. To put this in perspective, FHA has around 75,000 more bad loans today than it had a few months ago. Meanwhile, the agency's capital reserves are languishing at 0.24%, well below the 2% legally mandated floor.
FHA waves away these worries by arguing that the business it did since the 2007 housing crash is in better shape than the guarantees made at the height of the boom. AEI's Mr. Pinto calculates that 1.9% of loans signed between Nov. 1, 2009, and Oct. 31 of this year are seriously delinquent, which is a far cry from 9% but still exceptionally high. And this comes after FHA installed a chief risk officer and boosted its underwriting standards, among other things.
In effect, FHA is betting that it can grow its way out of trouble by insuring higher-end homes and higher-quality borrowers. Mr. Donovan, in his written statement to Congress, also promised to raise premiums, crack down on bad lenders, look at reforming claims processes and more. But none of this will shrink the FHA down to its traditional role as a lender to first-time low- or moderate-income homebuyers. Until that happens, the agency will continue to dominate the mortgage insurance market, and private competitors will shrink or go bust. That's the last thing the U.S. economy needs".
-- Wall Street Journal, political diary, 12/05/2011, by Mary Kissel