The insolvency of the federal government’s middle class entitlement programs is well-documented, at least for the high-information component of the electorate. We can now add home mortgage guarantees to the mix. The FHA does not maintain the required minimum capital reserves for the loan portfolios it supports. Credit rating agency analysts will be loathe to note this in the footnotes of whatever reports they publish.
Banks will ignore this news because they don’t want to frighten their corporate clients into thinking they’re just one mouse click away from a global credit market freeze. Maybe the Fed can extend the FHA a credit line and then hyperinflate it down to nothing. Maybe the two major political parties can pass a hat around among their donors and take up a collection to fill the FHA’s hole. My preferred alternative is to let the FHA go bust when the next foreclosure round forces banks to write off mortgages, which means we can use Dodd-Frank to forcibly collapse some financial institutions that shouldn’t exist.