The Federal Housing Administration, more commonly known as FHA is the insurer of about $750 billion in outstanding mortgages. A HUD Audit on FHA found their cash reserve fund is rapidly depleting and may drop below its Congressionally mandated 2% of insurance liabilities by the end of the year.
At a 50 to 1 leverage ratio, the FHA will soon have a smaller capital cushion than did investment bank Bear Stearns on the eve of its crash. FHA is now dealing with a 14% thirty day or more late rate. This is three times more than conventional mortgages. FHA’S cash reserve ration has fallen over two-thirds in the last three years
Why is this happening to FHA? They are the only one’s taking on sticky loans. Conventional Banks will not loan without a substantial down-payment and a stellar credit score. FHA has now placed itself in the position that the secondary lenders were in a couple of years back. Too bad they can’t dump their portfolios onto the stock market like the sub-prime lenders did. At least when the smoke clears somebody walks away with a trunk full of cash and there’s a good story to tell. This won’t happen with FHA. If they go under the tax payer is going to have to pick up the bill.
Out of every four loans currently being written FHA is writing one. Back in 2006 the ratio was 50 to 1. FHA is gambling with public money. If property values continue to decline then we can wave bye-bye to FHA
