I heard this morning that the Federal Housing Authority (FHA), the government agency that insures residential real estate loans, has lost nearly all its cash reserves to cover losses. Since last year, these reserves have fallen from $4.7 billion to $2.6 billion.
Federal law requires it to maintain a reserve of 2% of the $1.2 trillion of loans it currently has outstanding. Reserves will fall from 0.5% to 0.24% by 2012. Independent analysts say that the agency is underestimating loan losses by at least $50 billion.
That means the FHA will need a bail out next year, and therein lies the problem. In its current gridlocked mode, it is highly unlikely that congress will approve the multibillion dollar refunding of a controversial federal agency. The “let the chips fall where they may” crowd seem to have the upper hand. The FHA currently insures one third of US mortgages, up 560% since 2006, largely through the demise of its private competitors. No insurance means no loans. For you and I that means lower home prices.
This is a big concern here, locally, as a large percentage of the first-time buyers are FHA buyers. the under $200k market market is currently very healthy, but these under $200k homes are being purchased either all cash by investors or FHA by 1st time buyers…even some of the higher price buyers are using FHA loans as they are happy to have to have only a 3.5% down payment coupled with historically low rates…take away FHA? That would have a tremendously negative effect here in Palm Beach County.
