FHA Head Says Housing Market Is On Life Support

This article taken from ActiveRain.com the worlds largest real estate network.

According to David Stevens, head of FHA, the U. S. housing market is on life support. In an article in Bloomberg Businessweek, Stevens is quoted as saying: “This is a market purely on life support, sustained by the federal government.” He went on to say that the FHA’s monopoly of residential lending is “a sign of a very sick system.”

We should all be concerned by the level of lending from FHA and the potential for disaster should large numbers of the loans default. Earlier this year an article in the Washington Post reported that FHA delinquencies had increased by more than a third in the past year, with more than 9 percent of borrowers at least 90 days behind in their mortgage payments. And while newer data indicates that number to be decreasing, the concerning factor is the tremendous exposure of FHA due to the sheer volume of loans guaranteed. Recent data indicates that FHA’s involvement in home purchase transactions appears to have surpassed that of both Fannie Mae and Freddie Mac.

Stevens has repeatedly tried to downplay the current risk by pointing out that the majority of the “problem” loans were originated in 2007 and 2008 when more lax lending standards were in place. New requirements, he points out, should significantly lower the default rate. But what FHA seems to be ignoring is the risk from continued sluggishness in the economy combined with high unemployment. Lacking a robust recovery, many of the borrowers who may have once been good credit risks may have difficulty remaining current on their mortgages.

The ultimate problem, however, isn’t just one of the FHA; the dramatic increase in loan guarantees puts taxpayers on the hook for 100 percent of any losses the agency incurs.

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