Is FHA Modernization A Slam Dunk?
July 30th, 2007
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With support across the board from lenders and HUD officials, you might think that FHA modernization is a slam dunk.
Actually, that’s not the case.
First, FHA modernization, H.R. 1852, was passed by the House last year — but not the Senate. This time around, passage in the Senate remains uncertain.
Any large government program will offend someone for some reason. The real question is whether it will offend enough folks to fail.
One of the reasons to oppose FHA modernization is that it is simply a government program that competes with the private sector. A second reason is that if “modernization” means more risk taxpayers could be stuck with the bill.
Here’s what Sen. Richard C. Shelby (R-AL) has to say:
“Over the years, FHA loan guarantees have helped millions of Americans become homeowners. Because the American taxpayer stands behind the FHA’s guarantees, I believe this Committee should not only examine closely the status of the program, but also any effort to expand it.
“According to the President’s Budget submission, the FHA, for the first time in its history, will lose money this fiscal year, becoming a net loss to the taxpayer. Mr. Chairman, before the taxpayer is faced with greater losses, I believe we must determine how the FHA got into this position and how it intends to get out.
“Some would suggest we allow the FHA to grow its way out of insolvency with new products and expanded powers. This is a road we have been down before.
“For instance, as the S&L crisis was beginning, the response was to allow S&Ls to offer new products and expand their business. Because we failed to address the underlying weakness, the result of that expansion was a much larger bill for the American taxpayer.
“Over the last several months, this Committee has been watching the growing problems in the subprime mortgage market. According to the GAO, part of the growth of the subprime market came at the expense of the FHA. As liquidity in the subprime market declines, however, we can expect FHA activity to expand as more homeowners look to FHA insured products to meet their needs. As this happens, we must make sure that the FHA expands in a responsible manner.
“While the subprime market has witnessed considerable stress, the losses in that market are being borne by investors. Were these same losses to occur in FHA programs, it is likely they would be borne by the taxpayer.
“One lesson learned from the current pattern of defaults and delinquencies in the subprime market is that those borrowers with little or no equity in their home will be the most likely to fail. As we are already witnessing delinquency rates in the FHA’s portfolio that mirror the subprime market, I believe we must approach any attempt to expand the program or lower the programs standards with great caution.”
No matter how you read this, Shelby’s view is not a vote of confidence for FHA modernization as it now stands.
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This entry was posted on Monday, July 30th, 2007 at 1:45 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.
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August 16th, 2007 at 2:47 pm
I like this site. Long live FHA and lets get VA out there too. I am just starting a blog and look forward to your entries. Really looks like you know what you are doing.
September 3rd, 2007 at 2:36 am
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