Thursday, October 08, 2009

FHA Shortfall Seen at $54 Billion May Lead to Bailout

The Federal Housing Administration may be asking taxpayers for a bailout within the next year, claims former Fannie Mae executive Edward Pinto. He asserts that the program will incur over $54 billion in unexpected losses in the next twelve months. For those of you who may not be familiar, the Federal Housing Administration helps finance mortgages with low down payments, but had been struggling to keep up with risky loans in an unstable housing market. Check out the following story about the announcement courtesy of

“It appears destined for a taxpayer bailout in the next 24 to 36 months,” consultant Edward Pinto said in testimony prepared for a House committee hearing in Washington today. Pinto was the chief credit officer from 1987 to 1989 for Fannie Mae, the mortgage-finance company that is now government-run.

The FHA program’s volumes have quadrupled since 2006 as private lenders and insurers pulled back amid the U.S. housing slump, Pinto said. The jump has left the agency backing risky loans and exposed to fraud in a “market where prices have yet to stabilize,” he said.

Representative Scott Garrett, a New Jersey Republican, introduced legislation this month to boost the FHA’s minimum down payment to 5 percent from 3.5 percent to help shore up the agency’s insurance fund, a move that could add to the housing market’s burdens as it struggles to recover.

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