Fannie Mae, Freddie Mac, Now FHA

Investor’s Business Daily
IBD Editorials
10/08/2009

Housing Mess: A huge, government-run housing agency shows massive losses and needs a bailout. Fannie Mae? Freddie Mac? No. It’s the Federal Housing Administration, in a bad case of financial-meltdown deja vu.

The FHA, which insures mortgages made by first-time buyers with low down payments, says it may need a bailout because it will have losses of — get this — $54 billion. And how did it lose all that? By backing home loans made to people who couldn’t pay them off.

Where have we heard this before?

fha-home

At a time when we talk routinely of trillion dollar deficits, $54 billion may not seem like much. But it’s huge. Worse, it signals that the government, contrary to its repeated assertions of fiscal competence, is incapable of learning from its worst mistakes.

In the case of the FHA, as the Los Angeles Times notes, it doubled down on its bad bet. “This year alone,” the Times found, “the agency has backed nearly 2 million mortgages worth at least $328 billion. It insured 21.5% of all new mortgages last year, up from fewer than 6% in 2007.”

Wasn’t it only a year ago that we were told Fannie Mae and Freddie Mac were leaking money like sieves and would eventually need $400 billion in federal help? Now we’re told the FHA might need the same kind of help.

“It appears destined for a taxpayer bailout in the next 24 to 36 months,” Edward Pinto, an FHA consultant who served as chief credit officer at Fannie from 1987 to 1989, told Congress Thursday.

In short, the government’s part of the housing crisis hasn’t ended; it has merely changed addresses.

The op-ed continues here.

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