Bloomberg: Will FHA Be the Next Government Bailout?

The FHA could be on the verge of requiring a bailout, says a Bloomberg News column published this week. With a “vacuum” in the U.S. mortgage market and private financing for home loans nearly halting, policymakers must focus on what the column calls the “third leg of the housing-support stool: the Federal Housing Administration,” the column argues.

Left unchanged, the FHA’s accounting problems have the potential to require a cash infusion for FHA and a stress on taxpayers. If policymakers are more transparent about risks involved in guaranteeing mortgages, the column notes, these outcomes can be avoided. While Fannie Mae and Freddie Mac have received much of the focus, FHA is deserving of attention as well. With its capital reserves at $3.5 billion and outstanding mortgage guarantees projected to exceed $1 trillion in 2011, the administration’s accounting structure is troublesome, the column notes.

“The credit quality of FHA lending can be improved with better underwriting standards, such as requiring higher down payments and premiums,” the column argues.

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“The growth in FHA lending has turned a seemingly small problem into a large taxpayer vulnerability,” it continues. “The current accounting rules will also make it harder politically to shift some of the housing market back to the private sector.

Taxpayers end up bearing the brunt of the guaranteed mortgages, the column ultimately argues.

“The last time Congress delayed action in this area, taxpayers got stuck bailing out Fannie and Freddie — at a cost of more than $160 billion and rising,” it says.

Read the column on Bloomberg News.

Written by Elizabeth Ecker

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  • The intellectual value of the Bloomberg article is less than that which the average sophomore in high school could provide.  The authors continually confuse budgeting principles with accounting principles.  The writers accuse FHA of having accounting problems along with providing faulty budgetary projections.  Worse one would expect such errors from those getting started in high school but not from Bloomberg writers.
     
    Budgets are projections of what is expected to occur in the future.  Accounting is the process of recording and reporting on what has previously occurred.  They are two distinct aspects of running a business as well as running the government.  How much more basic is the financial aspects of government or business?  Yet these two geysers of truth do not seem to discern the difference.
     
    Either these writers are not sufficiently trained to report on the matters presented or they are deliberately lying.  Either way, the editors should have stopped the posting of this article or required that it be rewritten.
     
    This article is not only irrational, irresponsible, faulty, and false, but it also undermines the truth its writers want to present.  Yes, FHA is having problems with losses and budgeting can present a very false picture but this article makes it look like FHA has accounting irregularities as well.
     
    The article is garbled and riddled with the babblings of those who should not be writing for Bloomberg.  Its quality is what one would expect to find from rumor mongers on the Internet, not from Bloomberg.  The message that should have been provided is lost in its worthless accusations.

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