Thursday, December 20, 2012

Senate Considering Another Bailout...The FHA!!

The FHA is receiving higher fees for funding loans and it is receiving additional “insurance” premiums. Yet, it is poised to require additional bailout money in 2013!! I can only speculate that this indicates government inefficiency at its highest. Earlier in the year, the Federal Housing Administration (FHA) made headlines amidst speculation that it might require a taxpayer bailout before 2013 in order to remain solvent. The administration’s Mutual Mortgage Insurance (MMI) fund had fallen below its mandatory reserve ratio, and legislation demands that the situation be resolved in order for the FHA to continue to function normally. Although many individuals simply assumed the FHA, like other government entities, would simply take Treasury money to resolve the problem, several senators are hoping to fix the issue in another way: by increasing insurance premiums, barring “unscrupulous” lenders from FHA programs, requiring repayment of losses from lenders who committed mortgage fraud, improving internal financial controls, increasing transparency, and requiring an independent study of the agency’s “safety and soundness”. The proposed legislation, called the “FHA Stabilization and Reform Amendment,” was proposed by Senator Bob Corker (R-TN). Corker’s official website says that “the FHA has moved so far beyond its original mission to assist low-income Americans purchase their first home that it poses a real threat to taxpayers and must be fixed.” Corker calls his amendment “common sense.” The FHA is the only option for many perspective buyers and it is more important than ever. It is needed by more than just “low income” home buyers and in my opinion, it will not survive if it is only funding low income properties since there is a higher default rate on those and the fees are higher on more expensive homes. I am a bit shocked that the FHA is in this position, but I suppose it is not surprising since it is, after all, a government agency. Paddy Deighan J.D. Ph.D

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