Will U.S. Taxpayers Need to Bailout the Federal Housing Administration?

6/14/13
 
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from NCPA,
6/14/13:

The conventional mortgage market has tightened lending standards in the past few years and, consequently, witnessed a decline in delinquency rates, says John L. Ligon, a senior policy analyst at the Heritage Foundation.

While delinquency rates have recently decreased in most of the conventional mortgage market, the delinquency rate in the Federal Housing Administration (FHA) portfolio remains high. Indeed, more than 16 percent of FHA loans have been delinquent 30 days or more over the past two years; over 11 percent were delinquent 60 days or more. The high rate of delinquency and default on loans seriously impacts the financial solvency of the FHA book of loans.

The FHA backs a total loan portfolio of over $1 trillion — even though it has a little more than $1 billion (or 0.1 percent) in capital, leaving it with a forward capital shortfall (portfolio insolvency) in the range of $20 billion per year.

The losses in the FHA insurance fund are likely to continue and could ultimately necessitate a substantial taxpayer bailout.

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