FHA Taxpayer Bailout Coming?

Two years ago, in November 2009, we warned you that U.S. taxpayers would likely have to bail out yet another big government housing agency, and it wasn’t Fannie Mae or Freddie Mac.

We said it was the Federal Housing Administration, which sells lenders a 100% guarantee against defaults on home mortgages typically for lower income people. FHA has seen defaults skyrocket on these loans.

But the Federal Housing Administration fought us vigorously on our story. So did liberal economic research groups.

Turns out they were wrong.

As the FHA is now set to soon release its annual report, the University of Pennsylvania’s Wharton School estimates that the FHA faces around $50 billion in losses in coming years.

Last year, economists from New York University and the New York Federal Reserves also warned the government agency would need a taxpayer bailout.

Back in 2009, we found FHA only had a “teacup” of money against a flood of potentially bad loans out of the seven million it insures.

Today it only has $31.7 billion in reserves, out of which only $2.8 billion is set aside to back its $1 trillion book of business.

Thanks to government housing programs like the FHA, together with Fannie, Freddie, and Ginnie Mae, the U.S. taxpayer now insures about nine out of every 10 mortgages.

We’ve been telling you also that Fannie, Freddie and the FHA have dangerously mismanaged their capital cushions to support their business. That’s scary, because their balance sheets are about the size of the economies of France and India combined.

And their balance sheets continue to teeter at a time when the Congress and the Administration have leaned on them to do more to help bail out homeowners or to help them buy homes. We warned two years ago this could only result in “potentially catastrophic consequences for the U.S. taxpayer.” Fannie and Freddie are in government conservatorship.

Even Fannie and Freddie have consistently put out warnings submarined in their filings with the Securities and Exchange Commissions that they will continue to post losses due to the government’s housing bailouts. And even the Department of Housing and Urban Development’s Inspector General has issued withering reports on the FHA.

We’re watching out for you.

Here’s [FBN’s] original story: http://www.foxbusiness.com/markets/2009/11/05/bailout-fha-works/.

About Elizabeth MacDonald 7 Articles

Affiliation: FOX Business Network

Prior to joining FBN, MacDonald was a senior editor at Forbes Magazine, where she covered stock market and earnings news and created "The World's 100 Most Powerful Women" annual list. She was also a regular guest on the FOX News Channel (FNC), appearing on "Forbes on Fox," "Your World with Neil Cavuto" and "The O'Reilly Factor."

Before Forbes, MacDonald covered stock market, earnings and accounting abuses for The Wall Street Journal's Money & Investing section, with front page stories and Heard on the Street columns. MacDonald was one of the first journalists in the country to sound the alarm about the coming wave of accounting scandals in the mid-nineties, and also broke stories on, for example, Scientology's secret settlement with the IRS and the Kennedys' use of the IRS to target political enemies.

Prior to that, MacDonald was a financial editor for Worth magazine and covered the IRS and taxes for Money magazine. Members of Congress have noted an award-winning investigative series MacDonald reported on IRS abuses led to improved taxpayer rights and reforms at the agency. MacDonald was also called in to testify before Congress about IRS abuses.

Recognized as one of the top prize-winning business journalists in the country, MacDonald has received 14 awards, including the top prize in business journalism, the Gerald Loeb Award for Distinguished Business Journalism (and won a nomination in an ensuing year); the Society of Professional Journalists' Award for Outstanding Public Service reporting; and the Newswomen's Club of New York Front Page Award for Excellence in Investigative Journalism.

MacDonald is a native of Rockville Centre, New York.

Visit: FBN

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