FHA Outdoes Fannie and Freddie, Signals "a Very Sick System"

Monday, May 24, 2010 , , , 3 Comments

Filed under: no shit, Sherlock.

The FHA is the new Fannie/Freddie and between them, have financed 90% of new home loans in the US. That's not just government intervention, it's full-on life support. And yet Fannie and Freddie aren't truly a financial obligation of the United States? OK sure.

Business Week:

Loans guaranteed by the Federal Housing Administration, the U.S.-owned mortgage insurer, may be involved in more home-purchase transactions than borrowing financed by Fannie Mae and Freddie Mac.

FHA lending last quarter may have topped the combined volume of government-supported Fannie Mae and Freddie Mac in a home-lending market that’s still a “government-financed market,” David Stevens, the agency’s head, said today at a conference in New York, citing research by consultant Potomac Partners.

“This is a market purely on life support, sustained by the federal government,” he said at the Mortgage Bankers Association conference. “Having FHA do this much volume is a sign of a very sick system.”

For additional reading, I recommend Existing Home Sales: Inventory increases Year-over-Year via Calculated Risk.

It's sad when even full on life support can't save home sales, ain't it?

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.


W.C. Varones said...

Is that a JDA original photo?

Looks like 7th Street in SF, next to this place.

OldSouth said...

So, enlighten me, JDA:

1. Is FHA both putting up the money for home loans, while simultaneously insuring those same mortgages in the event of default?

2. Doesn't this resemble a snake eating its own tail? Aren't the insurer and lender supposed to be two separate entities, each with its own interests to look after in the deal?

3. Doesn't this create moral hazard, with Treasury (as in, us) left holding the bag if something goes wrong?

W.C. Varones said...


1. No, FHA just insures, promising to eat the loss for the banks as soon as the 3%-down gamblers decide to walk.

2. More like the snake FHA throwing the sheep taxpayers to the wolf bankers.

3. Exaaaaaaactly.