Bet the house: Why the FHA is going (for) broke

Article Highlights

  • The #FHA is deeply insolvent, with a capital shortfall of tens of billions of dollars

    Tweet This

  • Using its own rosy numbers puts the FHA's leverage at 840 to 1, a far more scandalous ratio than even #Fannie and #Freddie

    Tweet This

  • FHA raising its conforming loan limit to $729,750 pleased realtors, but poured fuel on the fire burning up its capital

    Tweet This

No serious observer of the Federal Housing Administration (FHA) believes its financial future is bright. But few Bet the House: Why the FHA is Going (For) Broke

Download PDF
recognize just how troubled this government agency really is. That is because it uses lax accounting standards that obscure real and present danger to its own bottom line and the American taxpayer. In fact, when measured against the accounting system used by private mortgage insurers, the FHA is deeply insolvent, with a capital shortfall of tens of billions of dollars. If it were a private firm, state regulators would immediately shut it down. 

Even using its own rosy numbers puts the FHA's leverage at 840 to 1, a far more scandalous ratio than even Fannie Mae and Freddie Mac. As shown by Fannie and Freddie as recently as 2008 and the slow-motion collapse of the savings and loans (S&Ls) in the 1980s, if government-backed entities are allowed to continue operating when they are insolvent, their losses will only compound.

Indeed, the FHA has almost tripled its insurance in force in only three years, in part to cover its losses. And Congress made matters worse last fall when it raised the FHA's conforming loan limit to $729,750. That pleased the powerful National Association of Realtors, but it simply poured fuel on the fire. Before the agency's losses skyrocket, triggering a massive taxpayer bailout that deepens our nation's debt, Congress should reverse that mistake and enact reforms to pull the FHA back from the brink. 

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

Peter J.
Wallison

What's new on AEI

Making Ryan's tax plan smarter
image The teacher evaluation confronts the future
image How to reform the US immigration system
image Inversion hysteria
AEI on Facebook
Events Calendar
  • 01
    MON
  • 02
    TUE
  • 03
    WED
  • 04
    THU
  • 05
    FRI
Wednesday, September 03, 2014 | 9:00 a.m. – 10:30 a.m.
From anarchy to Augustus: Lessons on dealing with disorder, from Rome’s first emperor

We invite you to join us for two panel discussions on how Augustus created order from chaos 2,000 years ago, and what makes for durable domestic and international political systems in the 21st century.

Wednesday, September 03, 2014 | 12:00 p.m. – 1:30 p.m.
Multiple choice: Expanding opportunity through innovation in K–12 education

Please join us for a book launch event and panel discussion about how a marketplace of education options can help today's students succeed in tomorrow's economy. Attendees will receive a complimentary copy of the featured book.

Thursday, September 04, 2014 | 12:00 p.m. – 1:30 p.m.
How conservatives can save the safety net

Please join us for a luncheon event in which our panel will discuss what conservatives can learn from how liberals talk and think about the safety net and where free-market economics, federalism, and social responsibility intersect to lift people out of poverty.

No events scheduled today.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.