Friday, October 9, 2009

FHA: Bailout or Belt Tighten?

I was reading a presentation to congress yesterday.  The gist of the meeting was that FHA, which is 75% of the housing market right now, is in big trouble due to fraud, poor underwriting standards, and waste.  The compensating taxpayer bailout would cost us $54 Billion.  I won't bore you with too many details.  However, rather than endorse a bailout, the expert testifying made some serious recommendations to right FHA's ship.  Here they are:




The first point would probably take care of the problem FHA is having.  If downpayments increased to 10%, I would expect the housing market sales volume to be cut by another half.  Painful? Yes. Necessary? You bet.  Getting underwriting back to realistic risk-reward ratios will cure most of the problems ailing our marketplace.

And then as a counterpoint there is the mindset of those in charge who are running the ship:

“I don’t think it’s a bad thing that the bad loans occurred. It was an effort to keep prices from falling too fast. That’s a policy.”
Barney Frank, chairman of the House Financial Services Committee on recent FHA lending.

Whoa?!

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