President Bush and some members of Congress want to dub the Federal Housing Administration as the White Knight who will rescue America from the mortgage mess. They want the agency to help homeowners refinance their subprime loans by offering to guarantee lenders it will cover the tab if the refinanced deals go into foreclosure.
But a New York Times report notes that the FHA is no shape to rescue anybody. Indeed, it’s “grappling with financial woes of its own” and may have to be bailed out by taxpayers, too. The agency already faces a deficit for the first time in its 74-year history – a $1.4 billion shortfall as of this coming October.
The cause of the problem, The Times reports, is a “rapidly growing and increasingly troubled sector of the FHA’s mortgage portfolio, known as the seller-financed down payment loan program, which has suffered from high delinquency and foreclosure rates in recent years.”
How bad is “increasingly troubled”? These risky loans accounted for 35 percent of last year’s FHA-insured loans. “Housing officials say these mortgages have foreclosure rates two to three times those of others, leaving the agency reeling from the losses,” The Times reported.
This is the government agency officials think can help fix the housing crisis? It’s already part of the problem! An agency already poised to cost taxpayers $1.4 billion shouldn’t be asked to add even more risky accounts to its portfolio.
For Heritage Foundation insights into the housing crisis and what Congress should and shouldn’t do about it, click here.