The next housing bailout?

Discussion in 'Economics' started by HopelessTrader, Dec 13, 2012.

  1. "The implosion of the government-sponsored enterprises Fannie Mae and Freddie Mac in 2008 did not end the government's massive -- and distorting -- role in the housing market. Instead, in the wake of their bailouts (taxpayers have forked over $180 billion and counting), much of the risk was simply shifted to the FHA. Indeed, FHA's insurance portfolio quadrupled in the past 5 years to $1.1 trillion today. The result is that FHA now guarantees 16 percent of all US mortgages, and 30 percent of all new home purchase mortgages. This is not an accidental trend: the FHA deliberately tried to "grow" its way out trouble, essentially betting the house on housing's recovery. Friday's numbers confirm that like Fannie and Freddie, it's easy to gamble when the taxpayer covers your losses.

    This wasn't a surprise. Research published last fall by the American Enterprise Institute showed that the agency had become as overleveraged as Lehman Brothers and Bear Stearns before their fall. Barring a dramatic economic recovery, the report noted that the increasingly poor-quality loans the FHA absorbed to grow its portfolio would compel the agency to seek a multibillion dollar bailout. Since then, AEI's monthly "FHA Watch" has chronicled the agency's slide into insolvency."

    "As these delinquencies from 2008-2010 turn into foreclosures -- a kind of post-bubble second wave -- they'll put downward price pressure on already-battered neighborhoods, and the nascent housing recovery could quickly reverse course, dragging the economy."