FHA Mortgage Guide

Usually when the Chairman of the Federal Reserve speaks just about everyone listens, in part because it’s tough to get a straight answer or to find a simple sentence.

Speaking before the Senate Banking, Housing and Urban Affairs Committee, Fed Chairman Ben Bernanke offered the following comments regarding FHA reform according to a http://www.knowledgeplex.org/news/649531.html”>transcript from Knowledgeplex.com, comments which hardly represent a strong endorsement of modernization.

“There’s clearly less reliance on the FHA than in the past,” said Bernanke. “My sense is that part of the problem is lack of flexibility — the costs of dealing with the FHA, lack of diversity of products, and so on. So I think that modernizing the FHA — trying to make it more responsive, easier for ultimate lenders to work with, and so on, might reverse this trend. It might give the FHA a larger share in the market, which could be a positive thing.

“I guess I would point out that the FHA does have, I think - if I remember correctly, I think it still has a fairly high delinquency and default rate and it doesn’t - it hasn’t solved the problem of, you know, delinquencies, and so on. And so as those changes get made, I would suggest moving with some caution to make sure that we don’t create yet another source of problems in terms of inappropriate loans for specific borrowers. So I do see a case for trying to make the FHA more modern and to expand its role but I would, you know, urge some caution and go slow on that.”

The solution to defaults under modernization, of course, is simply to get rid of risky borrowers — the GAO says that 20 percent of today’s borrowers would not qualify under the modernization program.

But if the FHA is not going to take a chance on risky borrowers, then why do we need a federal mortgage program? The private sector can churn out mortgages to low-risk borrowers — though given recent foreclosure headlines a lot of private lenders have obviously been insufficiently cautious.

Bernanke, of course, can be quoted as being for modernization (”I do see a case for trying to make the FHA more modern and to expand its role”) and against modernization (”I would, you know, urge some caution and go slow”).

As a result of such clear and crisp thinking it will never be possible to say that Mr. Bernanke gave incorrect advice.

Check out these FHA resources for more information

This entry was posted on Tuesday, July 31st, 2007 at 1:18 am and is filed under , . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.