Even Though Housing is Improving, The FHA is Still Struggling

by Marilou Long on November 14, 2012

in Credit Crisis,housing,Residential Real Estate

The Federal Housing Authority, or FHA, may need a bailout by early next year. Its share of loan originations has grown from 2.0% in 2006 to 33% last year. We started , and itas private lenders and Fannie and Freddie tightened standards have seriously impacted reserves. From the linked WSJ article:

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The Federal Housing Administration is expected to report later this week that it could exhaust its reserves because of rising mortgage delinquencies, according to people familiar with the matter. That could result in the agency needing to draw on taxpayer funding for the first time in its 78-year history.

The FHA”s tenuous financial condition would put a spotlight on an often-overlooked housing-market rescue. The New Deal-era agency, which doesn”t actually make loans but instead insures lenders against losses, has played a critical role stabilizing the housing market by backing mortgages of borrowers who make down payments of as little as 3.5%—loans that most private lenders won”t originate without a government guarantee. The FHA accounted for one third of loans used to purchase homes last year among owner occupants.

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