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 Bloomberg.com.

“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.

U.S. Mulling Mortgage Aid for Unemployed

As the unemployment problem in the country continues, the Obama administration is looking to help the poor U.S. housing market by offering specific aid for taxpayers struggling to make their mortgage payments. According to a new article from Reuters, the President has prompted policy makers to consider new options “allowing borrowers to delay, defer or skip payments," which are more effective than those currently available in the private sector.

The number of failing home loans has been climbing for three years as risky borrowers have defaulted on their easy-to-get loans, property values have sunk and the unemployment rate has climbed.

But the official said the idea, which is still evolving, was difficult from a policy perspective and carries potential hazards. It could help more people struggling with economic difficulty, but it also could create perverse incentives that distort the housing market, said the official, who did not want to speak on the record about internal administration debates.

The official said such a program would be in keeping with other measures to help workers who have lost jobs in the current recession.