FHA Mortgage Bailout

The federal government has already made bailouts to mortgage giants Fannie-Mae and Freddie-Mac in excess of one hundred sixty-five billion dollars and it now appears that the agency, FHA, that insures mortgages insured by the government may need as much as forty-three billion dollars to keep it afloat. Yes folks the gift that keeps on giving mortgage crisis fueled by liberal politicians desire to give anyone and everyone a mortgage even if they could not qualify for them – actually you should write your thank you notes to Senator Christopher Dodd and Congressman Barney Frank. Yes the same Senator Dodd that received a “sweetheart” mortgage deal from the now defunct Countrywide Home Loans and the same Congressman Frank whose lover was an executive at Fannie-Mae. Almost four years later and you’re still paying their tab.

How bad is it? Well a government report released last week said the chance of the needed mortgage bailout is greater than fifty-percent. According to USC Professor Richard Green of the University of Southern California’s Lusk Center for Real Estate, “They have no margin for error.” That’s because the mortgage losses from mortgage made by FHA prior to 2009 are adding up and eating away at capital reserves.

Have the lending criteria of FHA increased to make sure that we won’t repeat the mortgage debacle of the last decade. Well the answer is yes and no. FHA has raised the premium on the mortgage insurance for borrowers both on the up-front mortgage insurance and the monthly mortgage insurance on a FHA mortgage. But this move was to bolster the agency’s cash-reserves not really to make it more difficult to obtain an FHA mortgage.

Today you can still get a FHA mortgage with only three and one-half percent down-payment and that payment can be a gift. In turn this means the borrower has no “skin in the game” and like we have seen time and time if people have no equity in the home they have no reason not to walk away from the mortgage if times get tough.

Many lenders have raised the minimum FICO score for an FHA loan to 620 but there are still those out there willing to loan money to those with less than a 620 FICO score. To have a score that low means you have a history of nor paying your creditors on time – now why does the government insist on loaning money to high-risk borrowers?

Until FHA and the government gets real with stringent underwriting criteria the bailouts will just keep a coming!

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