Thread: Looming Deficit Impedes Federal Housing Agency

Looming Deficit Impedes Federal Housing Agency

By RACHEL L. SWARNS
Published: April 9, 2008

WASHINGTON — The Bush administration and Democratic leaders in Congress are counting on the Federal Housing Administration to rescue hundreds of thousands of homeowners from foreclosure by helping them refinance from risky subprime loans to stable government-backed mortgages.



Alphonso Jackson, the housing secretary, has told Congress that the F.H.A. has been pushed to the brink of insolvency.

Housing officials say the agency will face a deficit for the first time in its 74-year history, starting in the fiscal year that begins in October. And they blame a rapidly growing and increasingly troubled sector of the F.H.A.’s mortgage portfolio, known as the seller-financed down payment loan program, which has suffered from high delinquency and foreclosure rates in recent years.

Under the program, a home seller arranges to cover the buyer’s down payment — using financial help from a nonprofit company — but typically adds that sum or more to the total cost of the house. The arrangement has been particularly attractive to financially struggling buyers and to owners in depressed housing markets, according to Congressional officials.

In 2000, such mortgages made up less than 2 percent of F.H.A.-insured loans, officials say. By 2007, statistics show, they accounted for 35 percent of F.H.A. loans.

Housing officials say these mortgages have foreclosure rates two to three times those of others, leaving the agency reeling from the losses.

If the program continues without any changes, Congressional officials say, the F.H.A. would face a $1.4 billion shortfall in fiscal 2009. This would mean that Congress — and American taxpayers — would have to subsidize the F.H.A. for the first time.

Officials hope to help plug F.H.A.’s financial hole by charging homeowners higher premiums — making such loans more expensive — and by championing legislation that would ban seller down payment loans altogether.

In recent weeks, officials at the F.H.A.’s parent agency, the Department of Housing and Urban Development, have been ringing the alarm bells on Capitol Hill. On Wednesday, the head of the F.H.A., in testimony before the House Financial Services Committee, is expected to urge Congress to take swift action to curb such loans.

“These types of loans have pushed F.H.A. to the brink of insolvency,â€

Under the program, a home seller arranges to cover the buyer’s down payment — using financial help from a nonprofit company — but typically adds that sum or more to the total cost of the house. The arrangement has been particularly attractive to financially struggling buyers......

That's the reason for the mess......the last thing people, struggling financially, need to do is buy a house. Of course with the Community Reinvestment Act, originally from the Carter Admin., banks were coerced into giving loans to certain socio-economic groups. Some people have no idea what they are getting into when buying a house.....the maintenance and upkeep, but the govt. is giving people the impression that owing a house is an entitlement.